Suppose an Individual Has a Fixed Amount of Wealth to Allocate

question 5

Multiple Choice

Suppose an individual has a fixed amount of wealth to allocate between consumption in two periods (c₁ and c₂) .Any funds not spent in period 1 will earn interest (at the rate r) which will increase purchasing power in period 2.Consider four possible reactions to an increase in r:
I.c₁ increases.
II.c₁ decreases.
III.c₂ increases.
IV.c₂ decreases.
Which of these is consistent with the hypothesis that both c₁ and c₂ are normal goods?

• A)I,II,III,and IV
• B)I,II,and IV,but not III
• C)I,III,and IV,but not II
• D)I,II and III,but not IV

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Definitions:

Commercial Venture

An enterprise undertaken with the aim of achieving financial profit, often involving the buying and selling of goods and services.

Ecotourism

A form of sustainable travel to natural areas that aims to conserve the environment, respect the local culture, and promote economic development for local communities.

Industrial Market Exchange

Industrial market exchange refers to the buying and selling activities and transactions between businesses, especially those involving raw materials, components, and goods used in the production of other products or services.

Task Specialization

The process in which different individuals or groups in a society become experts in specific work tasks, contributing to efficiency and skill development.