Suppose That When Your Wealth Increases from $100,000 to $200,000

question 16

Multiple Choice

Suppose that when your wealth increases from $100,000 to $200,000, your holdings of stock mutual funds increases from $20,000 to $50,000. Your wealth elasticity of demand for stock mutual funds then is

• A)less than 1 and stock mutual funds are a necessity asset.
• B)greater than 1 and stock mutual funds are a luxury asset.
• C)less than 1 and stock mutual funds are a luxury asset.
• D)greater than 1 and stock mutual funds are a necessity asset.

---

Definitions:

Diminishing Marginal Utility

The principle that as a consumer consumes more of a good, the additional satisfaction gained from each additional unit decreases.

Staples

Basic or essential goods and services that are consumed regularly by individuals or businesses.

Paper Clips

Paper clips are small pieces of bent wire or plastic used for holding sheets of paper together.

Marginal Utility

The additional satisfaction or utility that a person receives from consuming one additional unit of a good or service.