Which of the Following Statements Best Illustrates the Concept of Derived

question 25

Multiple Choice

Which of the following statements best illustrates the concept of derived demand?

• A) As income goes up, the demand for farm products will increase by a smaller relative amount.
• B) A decline in the price of margarine will reduce the demand for butter.
• C) A decline in the demand for shoes will cause the demand for leather to decline.
• D) When the price of gasoline goes up, the demand for motor oil will decline.

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Definitions:

Treasury Bond

A long-term, fixed-interest U.S. government debt security with a maturity of more than ten years.

Yield

Yield is the income return on an investment, expressed as a percentage of the investment’s cost or current market value, commonly used for bonds and dividend-paying stocks.

Zero-Coupon Bonds

Bonds that don’t make periodic interest payments but are issued at a discount to their face value and redeemable for the face amount at maturity.

Expected Interest Rate

The anticipated rate at which interest is to be paid by a borrower for the use of money.