The Real-Income Effect Shows That

question 145

Multiple Choice

The real-income effect shows that

• A) a decrease in the price of a good increases the purchasing power of the consumer's income.
• B) if the consumer's income rises, he or she buys more of inferior goods and less of normal goods.
• C) if a good is inferior, a decrease in the purchasing power of income results in less of the good being consumed.
• D) when the price of a good rises, consumers are able to buy more of other goods because of the increase in the purchasing power of income.

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Definitions:

Ethics Violation

An action that goes against moral principles or professional standards, often resulting in disciplinary action.

Retail Inventory Method

An accounting method used by retailers to estimate inventory cost by calculating a cost-to-retail percentage and applying it to the ending retail value of inventory.

Inventory Valuation

The method of calculating the cost associated with inventory at the end of an accounting period to determine the cost of goods sold and inventory on hand.

LIFO Perpetual Inventory System

An inventory management method where the last items added to inventory are assumed to be the first sold, continuously updated.