Sam has $200 a month to spend on two normal goods—tanning sessions or rounds of golf. Tanning sessions are $20 each, and a round of golf is $40. Sam currently consumes six tanning sessions and two rounds of golf. If the price of a round of golf drops to $20, the income effect:

Multiple Choice

• 20 tanning sessions and 8 rounds of golf.

• 10 tanning sessions and 5 rounds of golf.

• 10 tanning sessions and 4 rounds of golf.

• 5 Tanning sessions and 2 rounds of golf.

Multiple Choice

• Dana will buy more hairbands now because they are relatively less expensive.

• Dana will be able to buy less of both goods.

• Dana will derive more utility from each item, because she values each one more now that she's poorer.

• All are correct.

Transcribed Image Text:

Q earrings 4 3 2 1 4 6 8 Q hairbands Assume the graph shown represents Dana's budget constraint. If Dana's income to spend on these two items decreased, which of the following could be said? Q earrings 4 3 2 1 4 6 8 Q hairbands Assume the graph shown represents Dana's budget constraint. If Dana's income to spend on these two items decreased, which of the following could be said?

Answer rating: 100% (QA)

2 Answer Correct Dana will be able to buy less of ... View the full answer