Which of the Following Statements Is True

question 89

Multiple Choice

Which of the following statements is true?

• A) If the income elasticity of demand is less than zero, the good is an inferior good.
• B) Only if the demand curve is vertical will sellers raise the price by the full amount of a tax.
• C) Two goods are substitutes if the cross-elasticity of demand coefficient is positive.
• D) A price elasticity of supply coefficient equal to 1.5 means the product exhibits an elastic supply and a 10 percent increase in the price will increase the quantity supplied by 15 percent.
• E) All of these.

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Definitions:

CAPM

Capital Asset Pricing Model, a model that describes the relationship between systematic risk and the expected return for assets, particularly stocks.

Required Return

The minimum gain needed from an investment to make it worthwhile for the investor, considering the risk associated.

Beta

A measure of a stock's volatility in relation to the overall market; a beta higher than 1 indicates higher volatility than the market, and a beta lower than 1 indicates lower.

Risk-Free Rate

The theoretical rate of return of an investment with zero risk, typically represented by the yield on government bonds.