Sam Has $200 a Month to Spend on Two Normal

question 39

Multiple Choice

Sam has $200 a month to spend on two normal goods-tanning sessions or rounds of golf.Tanning sessions are $20 each,and a round of golf is $40.Sam currently consumes six tanning sessions and two rounds of golf.If the price of a round of golf drops to $20,the income effect:

• A) predicts Sam will increase his consumption of both golf and tanning sessions.
• B) predicts Sam will double his consumption of golf.
• C) predicts Sam will consume more golf and less tanning sessions.
• D) predicts Sam will consume less golf and more tanning sessions.

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Definitions:

Salvage Value

The estimated resale value of an asset at the end of its useful life, often considered during depreciation calculations.

Double-Declining Balance

A method of accelerated depreciation where an asset’s book value is decreased at double the rate of its straight-line depreciation.

Straight-Line

A method of calculating depreciation or amortization by dividing the cost of an asset equally over its useful life.

Double-Declining Balance

A method of accelerated depreciation that doubles the normal depreciation rate, reducing the value of an asset more quickly in its early years.