The Price of Good X Falls

question 25

Multiple Choice

The price of good X falls.The income-effect of this price change:

• A)will usually cause X purchases to increase.
• B)will usually cause X purchases to decrease.
• C)may cause X purchases either to increase or decrease, there being no "usually" consequence.
• D)by definition, neither increases nor decreases X purchases.
• E)will not apply, since income-effects refer to changes in spendable income, not to price changes.

---

Definitions:

Interest Tax Shield

The reduction in income taxes that results from the deductibility of interest expense from taxable income.

Capital Structure

The mix of debt and equity financing a company uses for its operations and growth.

Optimal Capital Structure

Optimal capital structure is the mix of debt, equity, and other financing sources that minimizes a firm's cost of capital and maximizes shareholder value, balancing risk and return.