If a Product's Income Elasticity of Demand Is -1

question 125

Multiple Choice

If a product's income elasticity of demand is -1.7,then we can conclude that

• A)an increase in income will lead to an increase in demand for the product.
• B)the product is certainly a necessity.
• C)the product is a luxury good.
• D)a decrease in income will lead to an increase in demand for the product.
• E)the product is a normal good.

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Definitions:

Effective Annual Rate

The interest rate on an investment or loan that is compounded annually, reflecting the full amount of interest paid or earned over a year.

Compounding

The process where the value of an investment increases because the earnings on an investment, both capital gains and interest, earn interest as time passes.

Rate of Return

An indicator of the efficiency of an investment, measuring how much profit or loss has been made compared to its initial cost, represented as a percentage.

Cash Flows

The movement of money into and out of a business, representing earnings and expenses.