If an Increase in Income Leads to a Decrease in the Demand

question 64

Multiple Choice

If an increase in income leads to a decrease in the demand for a good, then the good is said to be:

• A) normal.
• B) a luxury.
• C) inferior.
• D) a staple or necessity.

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Definitions:

Firm Commitment

An underwriting agreement in which an underwriter agrees to buy all the unsold shares in an initial public offering (IPO).

Underwriter

A person or institution that assesses and accepts the risk on investments, insurance, or securities, often by buying or guaranteeing them.

Direct Costs

Direct costs are expenses directly tied to the production of a product or service, such as raw materials and labor.

Marginal Tax Rate

The rate of tax applied to the next dollar of taxable income, indicating the percentage of additional income that is taken in taxes.