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.

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Definitions:

Maturity Value

The total amount that will be received by an investor at the end of a bond's term or a deposit's duration, including both the principal and interest.

Term Deposit

A banking term for a fixed-term investment held at a financial institution where money is locked in for a certain period of time, earning a specified interest rate.

Simple Interest

Interest calculated only on the principal amount, or original sum borrowed or invested, without compounding.

Maturity Value

The total amount payable to an investor at the end of a fixed-term investment, including both principal and interest.