The Income Effect of a Price Change Suggests That

question 132

Multiple Choice

The income effect of a price change suggests that

• A) as income increases, a consumer will purchase fewer normal goods and more inferior goods.
• B) if the price of a good goes down, it will increase a consumer's purchasing power.
• C) consumer demand will increase if the income tax is increased.
• D) if the price of a good increases, consumers will be able to purchase more of other goods because of the increase in the purchasing power of income.

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Definitions:

Operating Income

Earnings before interest and taxes, representing the profit generated from a company's core business operations.

Net Income

The profit a company generates after all expenses, taxes, and costs have been subtracted from total revenue, indicating financial health.

Income Tax Expense

The accounting term for income taxes due to federal, state, and local governments within a given fiscal period.

Cash Flow

The complete volume of cash flowing into and exiting a corporation, with a significant impact on its liquidity.