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Questions and Answers
Which of the following are NOT key factors influencing the price elasticity of demand?
Which of the following are NOT key factors influencing the price elasticity of demand?
What type of relationship exists between price and quantity supplied, according to the Law of Supply?
What type of relationship exists between price and quantity supplied, according to the Law of Supply?
When demand for a good is perfectly elastic, it means that a price decrease will cause:
When demand for a good is perfectly elastic, it means that a price decrease will cause:
Which of the following statements about price elasticity of supply (PES) is true?
Which of the following statements about price elasticity of supply (PES) is true?
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If the price elasticity of demand for a product is 0.5, what does it indicate about the product's demand?
If the price elasticity of demand for a product is 0.5, what does it indicate about the product's demand?
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Which of the following is NOT a key factor influencing the price elasticity of supply?
Which of the following is NOT a key factor influencing the price elasticity of supply?
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What type of economic goods are characterized by a high price elasticity of demand?
What type of economic goods are characterized by a high price elasticity of demand?
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If the price of a good increases by 10% and the quantity supplied increases by 20%, what is the price elasticity of supply?
If the price of a good increases by 10% and the quantity supplied increases by 20%, what is the price elasticity of supply?
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Study Notes
AREC 323 Lecture 1 - Review of Economic Concepts
- The lecture covered supply and demand, cost, revenue, profit, and elasticity concepts.
- Supply: The quantity of a good or service producers are willing and able to offer at various prices during a specific period.
- Law of Supply: There's a positive relationship between price and quantity supplied. As price increases, quantity supplied increases.
- Demand: The quantity of a good or service consumers are willing and able to purchase at various prices during a specific period.
- Law of Demand: There's an inverse relationship between price and quantity demanded. As price decreases, quantity demanded increases.
- Elasticity: Measures how much the quantity demanded or supplied responds to a change in price.
- Own-price elasticity of demand (PED): Measures how quantity demanded changes in response to price changes.
- Own-price elasticity of supply (PES): Measures how quantity supplied changes in response to price changes.
- Cross-price elasticity: Measures how the quantity demanded of one good changes in response to a change in the price of a related good.
- Total Cost (TC) is the sum of fixed costs (FC) and variable costs (VC).
- Fixed costs (FC) do not change with the level of output.
- Variable costs (VC) change directly with the level of output.
- Average cost (AC) = TC/Q
- Marginal cost (MC) = dTC/dQ (the change in total cost divided by the change in output)
- Revenue: Total Revenue (TR) = Price (P) x Quantity (Q); Marginal Revenue (MR) = dTR/dQ
- Profit: Profit = Total Revenue - Total Cost (TR -TC)
- Profit maximization occurs at the output level where marginal revenue equals marginal cost (MR=MC).
- Explicit Costs: Direct monetary payments for resources.
- Implicit Costs: Opportunity costs of using resources owned by the firm.
- Economic Profit = Total Revenue – Economic Cost
- Accounting Profit: Total Revenue – Explicit Costs
Formulas
- Own-price elasticity formula: η= ΔQ/Q ÷ ΔP/P.
- Arc elasticity formula: η= (Q₂-Q₁)/(Q₂+Q₁)*( (P₂-P₁)/(P₂+P₁))/2
Key Concepts
- Factors influencing elasticity include availability of substitutes, necessity vs. luxury, proportion of income spent, time horizon, degree of commodity aggregation, and relationship with complementary/substitute goods.
- Factors affecting profit include revenue, costs (fixed and variable), market conditions and profit maximization.
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Description
This quiz reviews key economic concepts covered in AREC 323 Lecture 1. It focuses on the principles of supply and demand, elasticity, cost, revenue, and profit. Test your understanding of how these concepts interact and influence market dynamics.
