If an Increase in Labour and Capital of 10 Per

question 54

Multiple Choice

If an increase in labour and capital of 10 per cent leads to output increasing by 10 per cent then, ceteris paribus, the economy is operating with:

• A) increasing returns to scale.
• B) decreasing returns to scale.
• C) constant returns to scale.
• D) economies of scale.

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Definitions:

Equilibrium Price

The price at which the quantity of a product offered for sale matches the quantity that buyers are willing to buy, leading to a stable market condition.

Price Floor

A government- or group-imposed limit on how low a price can be charged for a product, above the equilibrium price, leading to surpluses.

Surplus

A situation where the quantity supplied exceeds the quantity demanded at the current price; often refers to excess in budget or resources.

Equilibrium Quantity

The quantity of goods or services supplied equals the quantity demanded at the market equilibrium price.