AL Finance Theory

What is the law of demand?

• The law of demand states that the quantity demanded for a good or service remains constant regardless of price changes

• As the price of a good or service increases, the quantity demanded for that good or service decreases, and vice versa.

• The law of demand only applies to luxury goods, not essential items

• As the price of a good or service increases, the quantity demanded for that good or service increases

Explain the concept of price elasticity of demand.

• Price elasticity of demand measures the responsiveness of quantity supplied to a change in price.

• Price elasticity of demand measures the impact of advertising on consumer demand.

• Price elasticity of demand measures the profitability of a product.

• Price elasticity of demand measures the responsiveness of quantity demanded to a change in price.

What factors can cause a shift in the supply curve?

• Currency exchange rates

• Weather conditions

• Changes in production costs, technology, government policies, and the number of suppliers

• Changes in consumer preferences

Describe the concept of equilibrium price and quantity.

• The point where supply and demand curves intersect

• The lowest price at which a good can be sold

• The highest price at which a good can be sold

• The average price of a good over a period of time

What are fixed costs in a business?

• Expenses that increase with the level of production

• Costs that are only incurred when sales are made

• Variable expenses that change with the level of production

• Expenses that do not change regardless of the level of production or sales

How is total revenue calculated?

• Quantity of goods sold minus the cost of production

• Total cost divided by quantity of goods sold

• Price at which they are sold divided by the quantity of goods sold

• Quantity of goods sold multiplied by the price at which they are sold

What is the difference between accounting profit and economic profit?

• There is no difference between accounting profit and economic profit

• Economic profit only considers explicit costs

• Accounting profit only considers explicit costs, while economic profit considers both explicit and implicit costs.

• Accounting profit considers implicit costs only

Explain the concept of break-even point.

• The break-even point is the level of sales at which total revenue is greater than total costs, resulting in a profit.

• The break-even point is the level of sales at which total revenue is equal to half of the total costs.

• The break-even point is the level of sales at which total revenue is less than total costs, resulting in a loss.

• The break-even point is the level of sales at which total revenue equals total costs, resulting in neither profit nor loss.

How is net profit margin calculated?

• Net profit minus total revenue

• Total revenue divided by net profit

• Net profit divided by total revenue, multiplied by 100

• Net profit divided by total expenses

What are the implications of a negative profit margin?

• A negative profit margin indicates that the company is financially stable

• The company is not generating enough revenue to cover its costs and is operating at a loss.

• The company is making a huge profit and is very successful

• It means the company is generating more revenue than its costs