What Are the Principal Advantages and Disadvantages of Using Cost-Based

question 90

Essay

What are the principal advantages and disadvantages of using cost-based transfer prices? (Give a short explanation of each item you list.)

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Definitions:

APC

The abbreviation for Average Propensity to Consume, which is the fraction of income that is spent on consumption rather than saved.

Marginal Propensity

This term explains the tendency of an individual or household to spend an additional unit of currency. For example, the marginal propensity to consume indicates how much consumption will increase with an additional dollar earned.

Disposable Income

The residual financial resources for households to use in saving and spending post paying income taxes.

Savings Rate

The Savings Rate is the percentage of income that is not spent on consumption but instead saved for future expenses, investments, or emergencies.