If a Good Is a Luxury the Income Elasticity of Demand

question 92

Multiple Choice

If a good is a luxury 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

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Definitions:

Net Operating Income

An accounting term that represents the revenue minus the cost of goods sold and operating expenses, excluding taxes and interest.

Degree Of Operating Leverage

A measure, at a given level of sales, of how a percentage change in sales will affect profits. The degree of operating leverage is computed by dividing contribution margin by net operating income.

Variable Expenses

Costs that vary in direct proportion to changes in an activity level or volume, such as sales commissions.

Sales Increase

The rise in the volume or amount of sales or revenue a company achieves in a specific period compared to a previous period.