Suppose That Consumers' Preferences Are Well Behaved in That Properties

question 112

Multiple Choice

Suppose that consumers' preferences are well behaved in that properties 4-1 to 4-4 are satisfied.Furthermore,assume that X is a normal good,Y is an inferior good,and the price of good Y increases.Then,which of the following effects is known with certainty?

• A) The income and substitution effects reinforce one another, leading to an overall decrease in the consumption of good X.
• B) The income and substitution effects will reinforce one another, leading to an overall increase in the consumption of good Y.
• C) The income and substitution effects will reinforce one another, leading to an overall increase in the consumption of good X.
• D) The income and substitution effects will have competing effects, leading to an indeterminate impact on the consumption of good Y.

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Definitions:

Par Value

The face value of a bond or stock, as specified by the issuing company, which does not necessarily reflect its market value.

Legal Capital

The minimum amount of capital that a company is required to maintain for the protection of its creditors.

Stockholders

Individuals or entities that own shares in a corporation, giving them various rights including a claim on part of the company's profits in the form of dividends.

Capital Paid

The total amount of money that investors have contributed to a corporation by purchasing shares of stock, also known as paid-in capital.