Let U(x,y) = with MU_x = and MU_y

question 25

Multiple Choice

Let U(x,y) = with MU_x = and MU_y = .Let I = $100,P_x = $10 and P_y = $10 be the initial set of prices and income.Now,let P_x rise to $25.What are the (approximate) substitution and income effects of this change in prices?

• A) Income effect = -3.3; Substitution Effect = -2.1
• B) Income effect = -2.3; Substitution Effect = -1.7
• C) Income effect = -1.3; Substitution Effect = -1.7
• D) Income effect = -1.7; Substitution Effect = -1.3

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Definitions:

Carrying Value

The book value of an asset on a company’s balance sheet, calculated as the original cost minus accumulated depreciation or amortization.

Equity Method

An accounting method used to assess the investments in associate companies where the investor has significant influence but does not control the company outright.

Consolidation Process

The method of combining the financial statements of a parent company with those of its subsidiaries to present as one entity.

Net Income

Net income is the total amount of profit a company makes after all expenses, taxes, and costs have been subtracted from its total revenue.