If a Good Is Normal the Income Elasticity of Demand

question 120

Multiple Choice

If a good is normal the income elasticity of demand must be

• A)Positive and greater than 1
• B)Merely positive (not necessarily greater than 1)
• C)Zero
• D)Negative

Analyze the impact of external factors on the price elasticity of goods and services.

Understand the significance of time in determining price elasticity.

Apply the concept of elasticity to understand consumer behavior in response to price changes.

Evaluate the effects of price discrimination based on elasticity of demand.

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Definitions:

Fixed Costs

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance premiums, providing predictability in budgeting.

Break Even

It is the point at which total costs and total revenues are equal, meaning there is no profit or loss.

Operating Income

Earnings before interest and taxes (EBIT), representing a company’s profit from its core business operations.

Variable Costs

Costs that vary directly with the level of production or sales volume, such as raw materials and direct labor costs.