Studies Show That the Income Elasticity of Demand for Wine

question 212

Multiple Choice

Studies show that the income elasticity of demand for wine is 5.03 and the income elasticity of demand for spirits is 1.21.This indicates that

• A)wine and spirits are luxury goods.
• B)wine is a luxury good and spirits are inferior goods.
• C)wine and spirits are highly price elastic.
• D)wine is a luxury good and spirits are necessities.

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Definitions:

Credit Sales

Sales where the customer is allowed to pay for the product or service at a later date, extending credit.

Bad Debt Expense

The estimated amount of accounts receivable that is not expected to be collected.

Allowance for Doubtful Accounts

A contra-asset account used to estimate the portion of accounts receivable that may not be collectible, reflecting potential losses due to credit sales.

Uncollectible Receivables

Debts owed to a company that are considered unlikely to be paid by the debtor.