Sam Has $200 a Month to Spend on Either Tanning

question 27

Multiple Choice

Sam has $200 a month to spend on either 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.Both tanning and golf are normal goods.If the price of a round of golf drops to $20,the income and substitution effects will cause Sam's consumption of tanning sessions:

• A) to increase, since both effects predict an increase.
• B) to decrease, since both effects predict a decrease.
• C) to change, but the direction is dependent upon which effect is stronger.
• D) It is impossible to say what will happen without more information.

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Definitions:

Trialability

The extent to which a potential customer can examine the merits of a new product without having to spend a lot of money or time doing so.

Return-On-Investment

A financial metric used to measure the likelihood of gaining a return from an investment relative to its cost.

Time Constraints

The limitations on the amount of time available to complete a task or project.

Budget Constraints

Financial limitations that restrict the amount of money available for spending and investment.