If the Price of Lattes, a Normal Good You Enjoy

question 93

Multiple Choice

If the price of lattes, a normal good you enjoy, falls,

• A) the income and substitution effects offset each other but the price effect leads you to buy more lattes.
• B) both the income and substitution effects lead you to buy more lattes.
• C) the income effect which causes you to increase your latte consumption outweighs the substitution effect which causes you to reduce your latte consumption, resulting in more latte purchased.
• D) the substitution effect which causes you to increase your latte consumption outweighs the income effect which causes you to reduce your latte consumption, resulting in more latte purchased.

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Definitions:

Special Order

A customer request for a product or service that is not normally offered by the business, often requiring unique production or procurement efforts.

Selling Price

The amount of money charged for a product or service, or the sum of the cost plus profit.

Variable Costs

Expenses that change in proportion to the production output or sales amount.

Target Costing

A pricing strategy in which the selling price of a product is set first, and then the target cost is determined by subtracting a desired profit margin from the selling price.