Two Alternatives, Code-Named X and Y, Are Under Consideration at Guyer

question 179

Multiple Choice

Two alternatives, code-named X and Y, are under consideration at Guyer Corporation. Costs associated with the alternatives are listed below.

-What is the financial advantage (disadvantage) of Alternative Y over Alternative X?

• A) $132,000
• B) $119,000
• C) $145,000
• D) $26,000

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Definitions:

Income Effect

The change in an individual's consumption choices resulting from a change in their real income.

Substitution Effect

The economic understanding that as prices rise (or incomes decrease), consumers will replace more expensive items with less costly alternatives.

Inferior Good

A type of good for which demand decreases when the income of the consumer increases, inversely related to normal goods.

Income Effect

The change in an individual's or economy's income and how that change will affect the quantity demanded of a good or service.