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-Kristen Has an Income of $450 Per Year to Spend

Question 327

Multiple Choice

-Kristen has an income of $450 per year to spend on music CDs and movies on DVDs. The price of a CD is $15 and the initial price of a DVD is $22.50. The indifference curves in the figure above (I<sub>1</sub>, I<sub>2</sub>, and I<sub>3</sub>) reflect Kristen's preferences. If the price of a DVD falls to $18, the income effect on Kristen's consumption of DVDs ________ the substitution effect, so a DVD is ________ good. A) partly offsets; an inferior B) partly offsets; a normal C) reinforces; an inferior D) reinforces; a normal
-Kristen has an income of $450 per year to spend on music CDs and movies on DVDs. The price of a CD is $15 and the initial price of a DVD is $22.50. The indifference curves in the figure above (I1, I2, and I3) reflect Kristen's preferences. If the price of a DVD falls to $18, the income effect on Kristen's consumption of DVDs ________ the substitution effect, so a DVD is ________ good.


A) partly offsets; an inferior
B) partly offsets; a normal
C) reinforces; an inferior
D) reinforces; a normal

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