Which of the Following Best Illustrates the Fallacy of Composition

question 156

Multiple Choice

Which of the following best illustrates the fallacy of composition?

• A) If the price of a product rises, the quantity produced will decline.
• B) The average wage rate tends to increase at approximately the same rate as inflation; hence, wage increases must cause inflation.
• C) Resources are scarce; therefore, there is no such thing as a free lunch.
• D) If Susan had more money she could buy more. If everyone had more money they could buy more.

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Definitions:

FIFO Assumption

Stands for First-In, First-Out, an inventory costing assumption where the first items purchased are the first ones to be sold.

Inventory Count

The process of physically counting the items in stock to verify the accuracy of inventory records.

Balance Sheet

A financial statement that shows the assets, liabilities, and stockholders' equity of a company at a specific point in time.

Assets

Resources owned by a business with economic value expected to provide future benefits.