Consider the Indifference Curve Map and Budget Constraint for Two

question 118

Multiple Choice

Consider the indifference curve map and budget constraint for two goods (B and K) .Suppose the good on the horizontal axis (K) is inferior,but not Giffen.When the price of the inferior good on the horizontal axis (K) decreases

• A)the substitution effect and income effect both cause an increase in the consumption of K.
• B)the substitution effect causes a decrease in the consumption of K and the income effect causes an increase in the consumption of K.However, the substitution effect is greater than the income effect.
• C)the substitution effect causes an increase in the consumption of K and the income effect causes a decrease in the consumption of K.However, the substitution effect is greater than the income effect.
• D)the substitution effect and income effect both cause a decrease in the consumption of K.

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Definitions:

Extra Dividend

A one-time payment made by a company to its shareholders, in addition to regular dividends, usually indicative of exceptional earnings.

Special Dividend

A one-time distribution of profits by a company to its shareholders, in addition to any regular dividends.

WACC

The weighted average cost of a company's capital from all sources, including equity and debt, used to evaluate investment possibilities.

Debt Ratio

The debt ratio measures a company's financial leverage by comparing its total liabilities to its total assets, indicating the proportion of a company's assets that are financed through debt.