When the Consumer Spends Less Than 1% of His Income

question 239

Multiple Choice

When the consumer spends less than 1% of his income on a good, demand will be

• A) elastic.
• B) unit-elastic.
• C) inelastic.
• D) elastic, unit-elastic or inelastic depending upon supply.

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Definitions:

Accounts Receivable Period

The average number of days it takes for a company to collect payments from its customers after a sale has been made, a key component in managing cash flow.

Letter of Credit

A financial document issued by a bank guaranteeing a buyer's payment to a seller in a transaction, effective in international trade.

Covenants

A promise by the firm, included in the debt contract, to perform certain acts. A restrictive covenant imposes constraints on the firm to protect the interests of the debtholder.