Using the Legend Provided, Classify Each Statement Accordingly

question 6

Multiple Choice

Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2016.
-Meal and entertainment expenses not deducted in 2016 because of the 50% limitation.

• A)Increase
• B)Decrease
• C)No effect

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Definitions:

Rational Consumer

An economic theory assumption that consumers make purchasing decisions based on their rational outlook, available information, and self-interest to maximize utility.

Income Effect

A change in the quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the product’s price.

Normal Good

A good or service whose consumption increases when income increases and falls when income decreases, price remaining constant.

Marginal Utility

Marginal utility is the additional satisfaction or benefit received by consuming one more unit of a good or service, often decreasing as consumption increases.