ECONOMICS (CBSE/UGC NET)

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ECONOMICS

ELASTICITY OF DEMAND

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Suppose the government relaxes the entry barriers for firms wanting to enter the market for Good X. With more firms engaging in the production of Good X, the price and quantity transacted of Good X change by 4% and 10%, respectively. One possible reason for the above phenomenon is that
A
it has become easier for firms to enter the market for Good X.
B
it takes time for firms to adjust their production plans.
C
there are many close substitutes for Good X.
D
Good X is a habit-forming good.
Explanation: 

Detailed explanation-1: -In economic terms, a country has a comparative advantage when it can produce at a lower opportunity cost than that of trade partners. While a country cannot have a comparative advantage in all goods and services, it can have an absolute advantage in producing all goods.

Detailed explanation-2: -Trade allows each country to take advantage of lower opportunity costs in the other country.

Detailed explanation-3: -Answer and Explanation: Countries specialize in the production of goods for which they have a comparative advantage. Reason: The comparative advantage theory states that a country should produce the goods in which it has comparative advantage. This will promote innovation and specialization in the production of goods.

Detailed explanation-4: -Comparative advantage refers to a country’s ability to produce a specific good or service at a lower opportunity cost than its trading partners.

There is 1 question to complete.
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