Table 6.5 -Refer to Table 6.5, Which Lists the Values of Harry

question 16

Multiple Choice

Table 6.5
-Refer to Table 6.5, which lists the values of Harry Taber's marginal utility and marginal utility per dollar for burgers and sushi rolls.Assume that the price of the burgers is $4 and the price of sushi rolls is $2.When Harry's income is $14 he buys two burgers and three sushi rolls.The last column lists the values of the marginal utility per dollar for sushi rolls when the price of sushi rolls decreases to $1.Complete this statement: As a result of the change in price,

• A)Harry's purchasing power has increased.He will reduce his consumption of sushi rolls so he can buy one more burger.This is an example of the substitution effect of a price change.
• B)Harry's purchasing power has increased.If sushi rolls are a normal good for Harry, he will buy fewer sushi rolls.This is an example of the income effect of a price change.
• C)Harry's purchasing power has increased.If sushi rolls are a normal good for Harry he will buy more sushi rolls.This is an example of the income effect of a price change.
• D)Harry's purchasing power has increased.Harry buys fewer sushi rolls.This is an example of the substitution effect of a price change.

---

Definitions:

Fair Value Method

An accounting approach that assesses and assigns a price to a company's assets and liabilities based on current market value.

Effective Interest Method

A method of calculating the amortized cost of a bond or loan on the basis on an effective interest rate rather than the nominal rate.

Cash Interest

Interest payments made in cash to creditors or bondholders during a specific period.