Dave consumes two normal goods, X and Y, and is currently at an optimum. If the price of good X falls, we can predict with certainty that
a. Dave will consume more of both goods because his real income has risen.
b. the substitution effect will be positive for good X and negative for good Y.
c. Dave may consume more or less of good X, but he will consume less of good Y.
d. the substitution effect will offset the income effect for good X.
b
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The demand for diet soft drinks (as a group) is relatively inelastic because
A) there are many of them on the market. B) there are few substitutes. C) the purchase of a soft drink represents a large portion of a person's budget. D) none of the above.
Assume that the market for executive travel is perfectly competitive. If the availability of time-sharing reduces transaction costs and the owner's cost of negotiating for a single trip, which of the following situations must occur?
a. The hours of flight available will increase. b. The hours of flight available will decrease. c. The cost of flying will remain steady. d. The cost of flying will increase.