AICPA Exam CPA-Business Topic 2 Question 71 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 71
Topic #: 2

[All CPA-Business Questions]

A basic determinant of the elasticity of demand for a normal good is the:

ALength of time producers have to respond to market changes.

BNumber of substitutes available for the product.

CNumber of sellers of the product.

DNumber of complements available for the product.

Show Suggested Answer

Suggested Answer: A

Choice 'a' is correct. 7.0 percent cost of funds from retained earnings.

The cost of retained earnings is equal to the rate of return required by the firm's common shareholders (or, in effect, the return 'lost' by them when the firm chooses to fund with retained earnings). While oftentimes this rate is somewhat subjective, we are given the facts to exactly answer the question in this case. The stock is currently selling for $100/share, and the dividend is given at $7/share.

$7 / $100 = 7%

Choices 'b', 'c', and 'd' are incorrect, per the above Explanation:/calculation.

by Whitley at Jul 05, 2023, 02:42 AM

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Aileen

2 months ago

Substitute goods are the name of the game when it comes to elasticity. B) is the winner, no doubt. Now, where's the free lunch option on this exam?

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Josephine

25 days ago

D) Number of complements available for the product.

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Cheryll

1 months ago

I agree, substitutes really impact the elasticity of demand.

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Santos

1 months ago

B) Number of substitutes available for the product.

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Florencia

3 months ago

B) all the way. The number of substitutes is the key factor here. Elasticity is all about how sensitive demand is to changes in price.

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Elmira

27 days ago

D) Number of complements available for the product.

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Sharen

28 days ago

C) Number of sellers of the product.

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Ciara

1 months ago

B) Number of substitutes available for the product.

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Melissia

2 months ago

A) Length of time producers have to respond to market changes.

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Bettina

2 months ago

D) Number of complements available for the product.

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Elza

2 months ago

A) Length of time producers have to respond to market changes.

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Eulah

2 months ago

B) Number of substitutes available for the product.

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Catina

3 months ago

Hah, C) Number of sellers? As if the number of sellers would affect the elasticity of demand. This is an economics exam, not a business competition!

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Monte

3 months ago

B) Number of substitutes available for the product.

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Jamika

3 months ago

A) Length of time producers have to respond to market changes.

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Lucia

3 months ago

I was torn between B and D, but I think B is the correct answer. The availability of substitutes is a fundamental determinant of elasticity.

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Allene

3 months ago

But what about the length of time producers have to respond to market changes? Doesn't that also affect elasticity?

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Chanel

3 months ago

I agree with Gaynell, because if there are many substitutes, consumers can easily switch to other options.

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Celeste

3 months ago

B) Number of substitutes available for the product. That's a no-brainer! The more alternatives a consumer has, the more elastic the demand for the original product.

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