Consider the Indifference Curve Map and Budget Constraint for Two

question 158

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 and Giffen.When the price of the inferior good on the horizontal axis (K) increases

• A)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 less than the income effect.
• 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 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 less than the income effect.

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Definitions:

Cost Method

An accounting approach where investments are recorded at their acquisition cost, without reflecting the investor's share of the investee's profits or losses until dividends are received.

Effective Tax Rate

reflects the percentage of income paid as tax, taking into consideration both federal and state taxes, and deductions.

Consolidated Retained Earnings

The accumulated net income of a company after dividends are paid, combined from all its divisions or subsidiaries.

Equity Method

An accounting technique used to reflect the investment in another company, typically applied when the investor has significant influence over the investee but does not fully control it.