Which of the following best describes the concept of leverage in economics?

• A. Reducing production costs through technological innovation
• B. Setting prices above equilibrium to increase profits
• C. Maximizing utility by consuming more goods and services
• D. Using borrowed funds to increase the potential return on investment

Answer: (D)

Verified step by step guidance

1. Understand that leverage in economics primarily refers to the use of borrowed funds to amplify potential returns on an investment.
2. Recognize that leverage involves taking on debt or using financial instruments to increase the amount of capital available for investment beyond what the investor's own funds would allow.
3. Note that leverage can increase both potential gains and potential losses, as borrowing magnifies the effects of changes in investment value.
4. Compare the given options to the definition of leverage: reducing production costs, setting prices above equilibrium, and maximizing utility do not involve borrowing or increasing investment capacity through debt.
5. Conclude that the option 'Using borrowed funds to increase the potential return on investment' best captures the economic concept of leverage.