In a Period of Rising Prices, the Inventory Method That

question 31

Multiple Choice

In a period of rising prices, the inventory method that results in the lowest income tax payment is:

• A) LIFO.
• B) FIFO.
• C) average cost.
• D) specific identification.

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Definitions:

Allocative Efficiency

A state of the economy in which production represents consumer preferences; specifically, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it.

Production Possibilities Curve

A visual diagram illustrating the highest potential production mixes of two products or services that an economy can reach when it uses all its resources in a completely efficient manner.

Stable Supply Curve

A situation in which the supply curve remains unchanged over time, indicating that the quantity supplied is not affected by changes in price.

Increasing Demand

A situation where the quantity of a good or service that consumers are willing and able to buy increases, often due to factors like rising incomes, changes in tastes, or lower prices of the product.