Understanding Economic Concepts

What does the Production Possibility Frontier (PPF) illustrate?

• The PPF illustrates the benefits of international trade.

• The PPF represents consumer preferences for different goods.

• The PPF illustrates the trade-offs between two goods and the maximum production capacity of an economy.

• The PPF shows the relationship between supply and demand.

How does an increase in consumer income affect the demand curve for normal goods?

• The demand curve for normal goods becomes vertical.

• The demand curve for normal goods shifts to the right.

• The demand curve for normal goods shifts to the left.

• The demand curve for normal goods remains unchanged.

What is the effect of a decrease in the price of a substitute good on the demand curve?

• The demand curve for the original good becomes vertical.

• The demand curve for the original good remains unchanged.

• The demand curve for the original good shifts leftward.

• The demand curve for the original good shifts rightward.

What factors can cause a shift in the supply curve?

• Global trade agreements

• Seasonal weather patterns

• Changes in consumer preferences

• Factors that can cause a shift in the supply curve include changes in production costs, technology, number of suppliers, government policies, and future price expectations.

How does a technological advancement impact the Production Possibility Frontier?

• Technological advancements only affect the demand curve, not the Production Possibility Frontier.

• Technological advancements shift the Production Possibility Frontier inward.

• Technological advancements have no effect on the Production Possibility Frontier.

• Technological advancements shift the Production Possibility Frontier outward.

What is the definition of price elasticity of demand?

• Price elasticity of demand refers to the fixed quantity of goods available.

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

• Price elasticity of demand measures consumer income levels.

• Price elasticity of demand is the total revenue generated from sales.

How do you calculate the price elasticity of demand?

• PED = (Total Revenue) / (Quantity Sold)

• PED = (Price Increase) / (Quantity Decrease)

• PED = (Change in Demand) / (Change in Supply)

• PED = (% Change in Quantity Demanded) / (% Change in Price)

What does it mean if a product has an elastic demand?

• A product has elastic demand if its quantity demanded changes significantly with price changes.

• A product has elastic demand if it is a necessity and cannot be substituted easily.

• A product has elastic demand if its price increases and quantity demanded also increases.

• A product has elastic demand if its quantity demanded remains unchanged with price changes.

What is the relationship between income elasticity of demand and luxury goods?

• Luxury goods have an income elasticity greater than 1.

• Luxury goods have an income elasticity between 0 and 1.

• Luxury goods have an income elasticity less than 0.

• Luxury goods have an income elasticity equal to 1.

How does cross elasticity of demand help in understanding substitute goods?

• It indicates how consumer preferences change over time.

• Cross elasticity of demand measures the total demand for a single good.

• Cross elasticity of demand helps identify the relationship between substitute goods by showing how the demand for one good changes in response to price changes of another good.

• Cross elasticity of demand is only relevant for complementary goods.