A Linear Demand Curve Will Have a Price Elasticity of Demand

question 115

Multiple Choice

A linear demand curve will have a price elasticity of demand whose absolute value:

• A) increases as price decreases.
• B) decreases as price decreases.
• C) is constant.
• D) is -1 at all prices.

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Definitions:

Induced Consumption

The portion of consumer spending that varies with changes in disposable income, suggesting that as people earn more, they spend more.

Autonomous Consumption

The level of consumption that occurs when income is zero, reflecting the basic level of consumption that does not vary with disposable income.

Disposable Income

Monetary provision for households to engage in saving and spending after the imposition of income taxes.

Induced Consumption

Refers to the portion of consumer spending that changes in response to changes in income levels, typically increasing as disposable income rises.