If the Demand for a Product Increases as the Result

question 38

Multiple Choice

If the demand for a product increases as the result of a decline in income, it can be concluded that the

• A) product is an inferior good.
• B) demand for the product is inelastic.
• C) price elasticity of demand for the product equals unity.
• D) demand for the product is elastic.

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Definitions:

Absorption Costing

An accounting method that includes all manufacturing costs (direct materials, direct labor, and both variable and fixed manufacturing overhead) in the cost of a product.

Product Costs

All costs that are involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead. Also see Inventoriable costs.

Manufacturing Costs

Expenses directly related to the production of goods, including direct materials, direct labor, and manufacturing overhead.

Contribution Margin

The difference between sales revenue and variable costs of a product or service, used to cover fixed costs and generate profits.