Long-run growth comes from expanding the economy’s productive capacity. Increasing the capital stock—machinery, buildings, infrastructure—raises the amount of output the economy can produce in the future. Improvements in technology and policies that raise productivity make workers and capital more productive, effectively shifting the production potential outward. When these supply-side factors improve, the economy can sustain higher output over time. That combination—more capital and better technology or productivity-enhancing policies—best promotes long-run growth because it directly enlarges what the economy can produce in the long run. The other options either affect demand in the short term, can crowd out private investment or reduce efficiency, or do not inherently raise the economy’s capacity to produce over the long horizon.

Comparative advantage is about opportunity costs—the idea that a country should specialize in and trade goods for which it gives up the least to produce. The best statement captures this: a country can produce a good at a lower opportunity cost than another producer. This matters because even if one country is more efficient at producing both goods (an absolute advantage in both), there can still be gains from trade if the relative sacrifices differ. By focusing on the good with the lower opportunity cost, each country can specialize and trade to enjoy more of both goods than if they tried to produce everything alone. The other descriptions fit different ideas: one describes absolute efficiency, not relative trade-offs; another describes the production possibilities frontier, which shows maximum combinations but not the idea of relative costs; and the last statement is incorrect because trade can be beneficial precisely when there are differences in comparative costs, not only when neither country has any advantage.

Income elasticity of demand measures how responsive the quantity demanded is to changes in income. It is calculated as the percentage change in quantity demanded divided by the percentage change in income. When this elasticity exceeds one, the good is a luxury: demand rises more than proportionally as income increases, so higher-income households buy disproportionately more of it. This differs from necessities, where the elasticity is between zero and one, and from inferior goods, which have negative elasticity. It’s also distinct from price elasticity of demand, which looks at responsiveness to price, not income.

The Lorenz curve shows how income is distributed across the population, with the line of perfect equality representing a perfectly even split. When the curve bows further away from that diagonal, a smaller portion of income goes to a larger portion of the population, meaning the distribution is more unequal. The larger the bow, the bigger the gap between actual shares and equal shares, which corresponds to higher inequality (the area between the curve and the line grows). So, inequality increases.