If the Price of Lattes, a Normal Good You Enjoy

question 114

Multiple Choice

If the price of lattes, a normal good you enjoy, falls, then

• A)the income and substitution effects offset each other but the price effect leads you to buy more lattes.
• B)both the income and substitution effects lead you to buy more lattes.
• C)the income effect which causes you to increase your latte consumption outweighs the substitution effect which causes you to reduce your latte consumption, resulting in more lattes purchased.
• D)the substitution effect which causes you to increase your latte consumption outweighs the income effect which causes you to reduce your latte consumption, resulting in more lattes purchased.

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Definitions:

Direct Labor-Hours

The total hours of work attributable directly to the production of goods, often used as a basis for assigning labor costs to units of product.

Predetermined Overhead Rate

A rate used to apply manufacturing overhead to products or job orders, calculated by dividing estimated overhead costs by an allocation base like direct labor hours.

Machine-Hours

The total hours that machines are operated in the production process, used as a basis for allocating manufacturing overhead to products.

Cost Of Goods Sold

The total cost directly involved in producing goods or services sold during a specific period.