Figure 5.1. The figure shows a linear production possibility curve representing a tradeoff faced by a country, between necessities and luxuries.
-Refer to figure 5.1. Under which of the following conditions, would the residents of the country choose to consume luxury goods?
A)When there is an increase in the price of luxury goods
B)When there is a decrease in the prices of inferior goods
C)When there is an increase in the prices of goods that are necessities
D)When there is an increase in the per capita income of households
E)When there is a decrease in the per capita income of households

Question

Figure 5.1. The figure shows a linear production possibility curve representing a tradeoff faced by a country, between necessities and luxuries​. 
-​Refer to figure 5.1. Under which of the following conditions, would the residents of the country choose to consume luxury goods?
A)​When there is an increase in the price of luxury goods 
B)​When there is a decrease in the prices of inferior goods 
C)​When there is an increase in the prices of goods that are necessities 
D)​When there is an increase in the per capita income of households 
E)​When there is a decrease in the per capita income of households

Quizplus · Accepted Answer

When there is an increase in the per capita income of households, the residents of the country would choose to consume luxury goods. As the per capita income increases, consumers have more disposable income, which they can use to purchase luxury goods. This is shown by an outward shift of the production possibility curve.

Figure 51 the Figure Shows a Linear Production Possibility Curve Representing