When an Individual Makes a Purchase Without Considering the Financial

question 103

Multiple Choice

When an individual makes a purchase without considering the financial consequences of that purchase, they are ignoring the ________________ aspect of financial planning.

• A)Borrowing
• B)Risk Management
• C)Spending
• D)Retirement and Estate Planning
• E)Obtaining

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Definitions:

Utility Function

A numerical model that explains how a consumer gains pleasure or usefulness from using goods and services.

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, holding the consumer's utility level constant.

Income Effect

The alteration in the income of a person or the economy, and its effect on the amount of a product or service that is requested.

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, causing consumers to substitute away from more expensive goods towards cheaper ones.