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How does the proportion of income affect price elasticity of demand?
How does the proportion of income affect price elasticity of demand?
What generally happens to the demand for luxury goods when their prices increase?
What generally happens to the demand for luxury goods when their prices increase?
Why is the demand for necessities considered more inelastic?
Why is the demand for necessities considered more inelastic?
What effect does addiction have on the price elasticity of demand?
What effect does addiction have on the price elasticity of demand?
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How does the time period affect demand elasticity?
How does the time period affect demand elasticity?
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Which of the following factors usually leads to more price elastic demand?
Which of the following factors usually leads to more price elastic demand?
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What is a characteristic of price inelastic demand?
What is a characteristic of price inelastic demand?
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When considering income effects on price elasticity, which statement is true?
When considering income effects on price elasticity, which statement is true?
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How does an increase in the price of a substitute good affect the demand for the original product?
How does an increase in the price of a substitute good affect the demand for the original product?
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What happens to the demand for complementary goods when the price of one of the goods rises?
What happens to the demand for complementary goods when the price of one of the goods rises?
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Which type of good experiences an increase in demand when consumer income rises?
Which type of good experiences an increase in demand when consumer income rises?
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How do changes in consumer tastes and fashions impact demand?
How do changes in consumer tastes and fashions impact demand?
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When consumer income increases, which of the following goods would likely see a decrease in demand?
When consumer income increases, which of the following goods would likely see a decrease in demand?
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Which factor directly influences the quantity of a product purchased by consumers?
Which factor directly influences the quantity of a product purchased by consumers?
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What type of goods are affected in the same direction as a price change of substitute goods?
What type of goods are affected in the same direction as a price change of substitute goods?
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If the demand for a product decreases as its price decreases, what type of good is it classified as?
If the demand for a product decreases as its price decreases, what type of good is it classified as?
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What characterizes unit elastic demand?
What characterizes unit elastic demand?
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What shape does the curve representing unit elasticity take?
What shape does the curve representing unit elasticity take?
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What happens to total revenue when there is elastic demand?
What happens to total revenue when there is elastic demand?
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How does inelastic demand affect total revenue when price changes?
How does inelastic demand affect total revenue when price changes?
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What does a price elasticity of demand (PED) value of zero indicate?
What does a price elasticity of demand (PED) value of zero indicate?
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In the context of total revenue and elastic demand, what is the PED value typically greater than?
In the context of total revenue and elastic demand, what is the PED value typically greater than?
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In which scenario is perfectly elastic demand likely to occur?
In which scenario is perfectly elastic demand likely to occur?
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For unitary demand, what is the relationship between price changes and total revenue?
For unitary demand, what is the relationship between price changes and total revenue?
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If the price of a magazine decreases from $5.00 to $4.50 and the quantity demanded increases from 200,000 to 230,000, what does this reflect?
If the price of a magazine decreases from $5.00 to $4.50 and the quantity demanded increases from 200,000 to 230,000, what does this reflect?
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What is the PED value for a good with elastic demand?
What is the PED value for a good with elastic demand?
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Which of the following statements best describes perfectly inelastic demand?
Which of the following statements best describes perfectly inelastic demand?
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What type of demand does a PED value of -0.5 indicate?
What type of demand does a PED value of -0.5 indicate?
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What occurs at a price where demand is perfectly elastic?
What occurs at a price where demand is perfectly elastic?
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Which of the following scenarios would likely exhibit perfectly inelastic demand?
Which of the following scenarios would likely exhibit perfectly inelastic demand?
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Which of the following best describes a PED value of infinity?
Which of the following best describes a PED value of infinity?
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What type of demand is characterized as completely unresponsive to price changes?
What type of demand is characterized as completely unresponsive to price changes?
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In the immediate time period, what is the nature of supply when firms cannot increase it regardless of price changes?
In the immediate time period, what is the nature of supply when firms cannot increase it regardless of price changes?
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What happens to the quantity supplied when the price falls below P1 in a perfectly elastic supply scenario?
What happens to the quantity supplied when the price falls below P1 in a perfectly elastic supply scenario?
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What range of values corresponds to inelastic supply?
What range of values corresponds to inelastic supply?
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What is the value of price elasticity of supply (PES) for perfectly elastic supply?
What is the value of price elasticity of supply (PES) for perfectly elastic supply?
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What can be concluded if the PES is infinite?
What can be concluded if the PES is infinite?
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In the context of normal products, how is the PES typically categorized?
In the context of normal products, how is the PES typically categorized?
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What type of supply curve is represented when the PES is less than one?
What type of supply curve is represented when the PES is less than one?
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During the immediate time period, how can firms react to price changes?
During the immediate time period, how can firms react to price changes?
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Study Notes
Determinants of Demand
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Internal Factors:
- The price of a product is influenced by its production cost.
- Higher prices generally lead to lower demand.
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External Factors:
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Price of Related Goods:
- Substitute Goods are alternatives (e.g., bus vs. LRT, coffee vs. tea).
- An increase in the price of a substitute good leads to an increase in demand for the original good, and vice versa.
- Complementary Goods are used together (e.g., computer and disk, pen and ink).
- An increase in the price of a complementary good leads to a decrease in demand for the original good, and vice versa.
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Consumers' Income:
- Increased income generally leads to increased demand for normal goods (e.g., cars, shirts, books).
- Increased income generally leads to decreased demand for inferior goods (e.g., low-grade potatoes, used cars).
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Consumers' Fashion Tastes and Preferences:
- Fashion trends and preferences influence demand, leading to increases in demand for fashionable products and decreases for outdated ones.
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Population or Number of Buyers:
- A larger population leads to higher demand.
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Price of Related Goods:
Price Elasticity of Demand (PED)
- PED measures the responsiveness of quantity demanded to changes in price.
- The equation for calculating PED: (Percentage change in quantity demanded) / (Percentage change in price).
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Range of PED Values:
- Perfectly Inelastic Demand (PED = 0): Demand is unresponsive to price changes.
- Perfectly Elastic Demand (PED = ∞): Demand is infinitely responsive to price changes.
- Unit Elastic Demand (PED = 1): Percentage change in quantity demanded equals the percentage change in price.
- Elastic Demand (PED > 1): Percentage change in quantity demanded is greater than the percentage change in price.
- Inelastic Demand (PED < 1): Percentage change in quantity demanded is less than the percentage change in price.
Total Revenue and PED
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Elastic Demand:
- Decreasing price increases total revenue.
- Increasing price decreases total revenue.
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Inelastic Demand:
- Decreasing price decreases total revenue.
- Increasing price increases total revenue.
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Unitary Demand:
- Changes in price do not affect total revenue.
Price Elasticity of Supply (PES)
- PES measures the responsiveness of quantity supplied to changes in price.
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Range of PES Values:
- Perfectly Inelastic Supply (PES = 0): Supply is unresponsive to price changes (short-run scenario).
- Perfectly Elastic Supply (PES = ∞): Supply is infinitely responsive to price changes.
- Inelastic Supply (PES < 1): Percentage change in quantity supplied is less than the percentage change in price.
- Elastic Supply (PES > 1): Percentage change in quantity supplied is greater than the percentage change in price.
- Unit Elastic Supply (PES = 1): Percentage change in quantity supplied equals the percentage change in price.
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Description
Explore the various factors that influence demand for goods and services in this quiz. Understand how internal and external factors, such as the price of related goods and consumers' income, affect demand. Test your knowledge on the concepts of substitute and complementary goods, as well as normal and inferior goods.
