The Income Elasticity of Demand

question 6

Multiple Choice

The income elasticity of demand

• A)is usually zero because "you can only have so much."
• B)could be positive or negative or zero, depending on the nature of the good.
• C)can never be zero.
• D)must be positive because consumers tend to buy more at higher incomes.
• E)must be negative because of the law of increasing cost.

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Definitions:

Nominal Interest Rate

The percentage increase in money that borrowers pay lenders, not adjusted for inflation.

Inflation

The pace at which prices for various goods and services climb, diminishing the value of money to buy them.

Storage Costs

Expenses associated with keeping goods stored in a warehouse or other facility until they are sold or used.

Interest Rate

The interest rate a borrower incurs for the money lent to them by a lender.