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:
A) predicts Sam will increase his consumption of both golf and tanning sessions.
B) predicts Sam will double his consumption of golf.
C) predicts Sam will consume more golf and less tanning sessions.
D) predicts Sam will consume less golf and more tanning sessions.

Question

Quizplus · Accepted Answer

When the price of a round of golf drops, Sam's real income increases, allowing him to potentially consume more of both goods, assuming they are normal goods.

Sam Has $200 a Month to Spend on Two Normal