Suppose That Molly from Problem 2 Had an Income of $200

question 26

Multiple Choice

Suppose that Molly from Problem 2 had an income of $200 in period 1 and an income of $460 in period 2. Suppose that her utility function were c^a₁c^1-a₂, where a = 0.40 and the interest rate were 15%. If her income in period 1 doubled and her income in period 2 stayed the same, her consumption in period 1 would

• A) increase by $80.
• B) increase by $40.
• C) double.
• D) stay constant.
• E) increase by $200.

Acknowledge the role of marginal analysis in economic decision-making.

Identify the factors that influence economic choices and behaviors.

Grasp the basic postulate of economics that incentives matter.

Understand the implications of economizing behavior and marginal changes.

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Definitions:

Amortization

The process of gradually writing off the initial cost of an asset over its useful life, applicable to intangible assets.

Acquisition Differential

The gap between what is paid to buy a company and the net worth of its recognizable assets and debts.

Equity Method

A financial recording method for logging investments in subsidiary entities where the investor has considerable sway but lacks complete dominance.

Goodwill

An intangible asset that arises when a company acquires another business for a price higher than the fair value of its identifiable net assets.