ACCA Performance Management (F5) Certification Practice Exam

What does the gradient of the line 'b' represent?

1. Change in total revenue

2. Change in price over quantity

3. Change in demand

4. Change in supply

The correct answer is: Change in price over quantity

The gradient of the line 'b', often in the context of a graph representing various economic relationships, typically represents the change in one variable in relation to another. When you consider the relationship between price and quantity, the gradient illustrates how much the price of a good changes when the quantity sold changes. In this case, the correct answer indicates that the gradient reflects the change in price over quantity. This is particularly relevant in demand and supply analysis, where understanding the sensitivity of price to quantity sold is crucial for determining equilibrium in markets. The steeper the gradient, the more significant the price change is relative to the quantity change, which can inform decisions regarding pricing strategies and market positioning. The focus here is on maintaining the right balance for a firm to maximize its revenue or minimize its costs based on how the price behaves as quantity changes. This relationship underlines fundamental economic principles, such as elasticity, which measure how responsive the demand or supply of a product is to changes in price.