Assume That a Four Per Cent Decrease in Income Results

question 51

Multiple Choice

Assume that a four per cent decrease in income results in a two per cent increase in the quantity demanded of a good.The income elasticity of demand for the good is:

• A)negative and therefore the good is an inferior good
• B)negative and therefore the good is a normal good
• C)positive and therefore the good is an inferior good
• D)positive and therefore the good is a normal good

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Definitions:

Flexible Budget

A financial strategy that evolves in line with shifts in activity intensity or operational volume.

Budgeting Formulas

Mathematical expressions or algorithms used to calculate various components of a budget, such as expenses, revenues, or profits.

Direct Materials

Raw materials that are directly traceable to the production process and are a part of the finished product.

Flexible Budget

An adaptable financial plan that changes according to the actual output levels or activities of a business.