The use of a "replacement cost" definition of "market" is based on the assumption that
A) a decline in an item's replacement cost results in a decline in its selling price.
B) prices will fall in the same proportion as input costs fall.
C) replacement cost is appropriate for all situations.
D) using "net realizable value less a normal profit margin" will arbitrarily shift profits from one period to another.

Question

Quizplus · Accepted Answer

The use of a "replacement cost" definition of "market" assumes that a decline in an item's replacement cost will result in a decline in its selling price. This is because replacement cost reflects the current cost of replacing the item, which can influence the price that buyers are willing to pay. Choices B, C, and D are incorrect because they do not reflect the rationale behind a replacement cost definition of market.

The Use of a "Replacement Cost" Definition of "Market" Is