Multiple Choice QuestionWhich of the following illustrates a change in the general economic environment that could affect a firm's economic profits?Multiple choice question.Increased supply caused by an extended recessionDiminishing demand caused by an extended recessionIncreased demand caused by an extended recessionDiminishing demand caused by an expansion
Question
Multiple Choice QuestionWhich of the following illustrates a change in the general economic environment that could affect a firm's economic profits?Multiple choice question.Increased supply caused by an extended recessionDiminishing demand caused by an extended recessionIncreased demand caused by an extended recessionDiminishing demand caused by an expansion
Solution
The correct answer is: Diminishing demand caused by an extended recession.
Here's why:
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An extended recession is a period of general economic decline, typically defined as a decline in GDP for two or more consecutive quarters.
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During a recession, unemployment rates rise, household income falls and consumers cut back on spending.
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This decrease in consumer spending leads to a decrease in demand for goods and services.
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When demand decreases, firms sell less of their product or service, which can lead to lower economic profits.
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Therefore, a diminishing demand caused by an extended recession is a change in the general economic environment that could affect a firm's economic profits.
The other options do not accurately represent changes in the general economic environment that could affect a firm's economic profits. For example, an increased supply or demand during a recession or a diminishing demand during an expansion do not align with typical economic patterns during these periods.
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