If a good is normal and its price increases,
a. the income effect will be positive and the substitution effect will be positive.
b. the income effect will be negative and the substitution effect will be negative.
c. the income effect will be positive and the substitution effect will be negative.
d. the income effect will be negative and the substitution effect will be positive.
Question 2
When considering setting the transfer price at the market price of a product similar to the intermediate good that is already available on the market
a. It is appropriate to ignore that the market price includes a margin above marginal cost
b. Consider whether the product on the market includes costly features your downstream division does not use
c. it is OK if the product on the market is inexpensive because its quality is lower than you use
d. if it is similar enough, it is justification for you producing it in-house
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