The Demand Curve for Canned Peas Is Downward Sloping

question 221

Multiple Choice

The demand curve for canned peas is downward sloping. If the price of canned peas, an inferior good, rises,

• A) the income effect which causes you to reduce your canned peas purchases is smaller than the substitution effect which causes you to increase your purchases, resulting in a net increase in quantity demanded.
• B) the income effect which causes you to increase your canned peas purchases is smaller than the substitution effect which causes you to reduce your purchases, resulting in a net decrease in quantity demanded.
• C) both the income and substitution effects reinforce each other to decrease the quantity demanded.
• D) the income and substitution effects offset each other, but the price effect of an inferior good leads you to buy more canned peas.

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Definitions:

Flexible Budget

A budget that adjusts or flexes with changes in volume or activity, allowing companies to better forecast costs and revenues.

Personnel Expenses

Costs associated with employing staff, including wages, benefits, and training costs.

Planning Budget

A financial plan that estimates the revenue and expenses for a specific period in the future, often used for setting financial goals.

Administrative Expenses

Overhead costs related to the general operation of a company, such as salaries of executive personnel, office supplies, and utilities.