Nick Considers Macaroni and Cheese to Be an Inferior Good

question 184

Multiple Choice

Nick considers macaroni and cheese to be an inferior good. As a result of macaroni and cheese being an inferior good, the

• A) substitution effect must be larger in magnitude than the income effect so that less is purchased as the price falls.
• B) substitution effect must be smaller in magnitude than the income effect so that less is purchased as the price falls.
• C) income effect is positive, so that more is purchased as income increases.
• D) income effect is negative, so that less is purchased as income increases.

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Definitions:

Current Accounts Deficit

A measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports.

Current Account Deficit

An evaluation of a nation's trade balance when the cost of its imports surpasses the value of its exports in goods and services.

Trade Deficits

Occur when a country's imports exceed its exports during a certain period, indicating an outflow of domestic currency to foreign markets.

Capital Account Balance

A measure within a country's balance of payments that records all transactions involving the acquisition or disposal of capital assets, such as securities and real estate, between residents and nonresidents.