Waldo Consumes Only Apples and Bananas and Bananas Are an Inferior

question 4

Multiple Choice

Waldo consumes only apples and bananas and bananas are an inferior good for him.The price of apples increases, but there is an increase in his income that keeps him on the same indifference curve as before.(Waldo has convex preferences, and he prefers more to less of either good.)

• A)After the change, Waldo will buy more bananas and fewer apples.
• B)After the change, Waldo will buy fewer bananas and more apples.
• C)After the change, Waldo will buy more of both goods.
• D)After the change, Waldo will buy fewer of both goods.
• E)We would need to know his utility function to determine whether any of the above statements are true.

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Definitions:

Par Value

The face value of a bond or stock, representing the amount to be returned to the holder at maturity, or a nominal value for stock.

Zero-coupon Bond

A bond that does not pay interest during its life but is sold at a deep discount from its face value and pays its face value at maturity.

Yield To Maturity

The total return anticipated on a bond if it is held until it matures, including all interest payments and capital gains or losses.

Par Value

The face value of a bond or stock, representing the amount that the issuer agrees to pay at maturity or the value assigned to a stock for accounting purposes, respectively.