The Demand Curve for Corn Is Downward Sloping

question 291

Multiple Choice

The demand curve for corn is downward sloping. If the price of corn, an inferior good, falls,

• A) the income effect which causes you to reduce your corn purchases is smaller than the substitution effect which causes you to increase your corn purchases, resulting in a net increase in quantity demanded.
• B) the income effect which causes you to increase your corn purchases is larger than the substitution effect which causes you to reduce your corn purchases, resulting in a net increase in quantity demanded.
• C) both the income and substitution effects reinforce each other to increase the quantity demanded.
• D) the income and substitution effects offset each other, but the price effect of an inferior good leads you to buy less corn.

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Definitions:

Net Realizable Value

The estimated selling price of goods, minus the costs of their completion and the costs necessary to make the sale.

Accounts Receivable

Money owed to a business by its clients or customers for goods or services rendered on credit.

Allowance for Doubtful Accounts

An estimation of the amount of accounts receivable that is not expected to be collected.

Subsidiary Ledger

A ledger that contains accounts of a single type. Example: The accounts receivable subsidiary ledger records all credit customers.