Goods 1 and 2 Are Perfect Complements, and a Consumer

question 12

Multiple Choice

Goods 1 and 2 are perfect complements, and a consumer always consumes them in the ratio of 2 units of good 2 per unit of good 1.If a consumer has an income of $720 and if the price of good 2 changes from $8 to $9, while the price of good 1 stays at $1, then the income effect of the price change

• A)is 9 times as strong as the substitution effect.
• B)does not change demand for good 1.
• C)accounts for the entire change in demand.
• D)is exactly twice as strong as the substitution effect.
• E)is 8 times as strong as the substitution effect.

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Definitions:

Equity Method

An accounting technique used by a company to record its investment in another company when it has significant influence but does not fully control it.

Ownership Percentage

The share or portion of a company that is owned by an individual or entity, typically expressed as a percentage of total outstanding shares.

Voting Stock

Shares that give the shareholder the right to vote on matters of corporate policy and the election of the board of directors.

Common Stock

Shares representing ownership in a corporation, entitling the shareholder to a portion of the corporation's profits and a vote in shareholder meetings.