If the Price of Muffins, a Normal Good You Enjoy

question 152

Multiple Choice

If the price of muffins, a normal good you enjoy, rises, then

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

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Definitions:

Cash Dividends

Payments made by a company to its shareholders out of its profits in the form of cash.

Net Income

The final amount of profit a company makes after subtracting costs, taxes, and expenses from its gross revenue.

Fair Value

An estimated market value of an asset or liability based on current market prices or valuations.

Stock Investments

The purchase of shares in a company with the expectation of generating income or capital gains.