Assume That a Four Per Cent Increase in Income Results

question 39

Multiple Choice

Assume that a four per cent increase 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:

Fixed Overhead

The total non-variable costs associated with operating a business, including rent, salaries, and insurance, that remain unchanged regardless of the level of production or sales.

Direct Labor

The wages and other forms of remuneration paid to employees who directly work on the products being manufactured, such as assembly line workers.

Property, Plant, and Equipment

Long-term tangible assets used in the operation of a business, such as buildings, machinery, and equipment.

Raw Material

Basic materials used in the production process, which are transformed into finished goods through the manufacturing process.