You Have to Decide Whether to Buy Shares in a Company

question 82

Essay

You have to decide whether to buy shares in a company selling surfboards or a company selling roller skates. The income elasticity for roller skates is - 0.2 and the income elasticity for surfboards 0.9. Most economists are predicting that consumer income will rise over the next few years. Which company should you invest in and why?

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Definitions:

Critical Value(s)

The threshold values used in hypothesis testing to determine whether to reject the null hypothesis, based on the chosen significance level.

Hypotheses

Statements made for the purpose of testing if they are true or false within the context of scientific research or experiments.

Two-tailed Test

A statistical test hypothesis where the area of interest is in both tails of the probability distribution, testing for the possibility of an effect in two directions.

One-tail Area

The probability in the tail of a distribution in a one-tailed test.