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Questions and Answers
What happens to the quantity demanded of gasoline when its price increases?
What happens to the quantity demanded of gasoline when its price increases?
- It fluctuates randomly.
- It remains unchanged.
- It decreases. (correct)
- It increases significantly.
Which statement correctly defines inelastic demand?
Which statement correctly defines inelastic demand?
- Quantity demanded remains constant at all price points.
- Quantity demanded changes slightly with price changes. (correct)
- Quantity demanded is unaffected by price changes.
- Quantity demanded changes substantially with price changes.
Which of the following best describes elasticity in economics?
Which of the following best describes elasticity in economics?
- A fixed amount of change in demand.
- The maximum price consumers are willing to pay.
- An unchanging quantity supplied regardless of price.
- A measure of responsiveness to market changes. (correct)
What determines the price elasticity of demand?
What determines the price elasticity of demand?
What would likely happen if a new tax is imposed on gasoline?
What would likely happen if a new tax is imposed on gasoline?
In economic terms, if the quantity demanded responds moderately to price changes, how is this demand described?
In economic terms, if the quantity demanded responds moderately to price changes, how is this demand described?
How do economists typically calculate the price elasticity of demand?
How do economists typically calculate the price elasticity of demand?
What is likely to influence a consumer's response to changing gasoline prices?
What is likely to influence a consumer's response to changing gasoline prices?
What factor contributes to a good having more elastic demand?
What factor contributes to a good having more elastic demand?
Which of the following is more likely to have inelastic demand?
Which of the following is more likely to have inelastic demand?
Which market definition is likely to exhibit more elastic demand?
Which market definition is likely to exhibit more elastic demand?
How does time horizon affect the elasticity of demand for goods?
How does time horizon affect the elasticity of demand for goods?
What happens to the quantity demanded of butter if its price increases, assuming margarine's price is fixed?
What happens to the quantity demanded of butter if its price increases, assuming margarine's price is fixed?
Which of the following statements about luxury goods is true?
Which of the following statements about luxury goods is true?
Which product would likely have an inelastic demand due to a lack of substitutes?
Which product would likely have an inelastic demand due to a lack of substitutes?
What is the primary reason that narrow market definitions tend to have more elastic demand?
What is the primary reason that narrow market definitions tend to have more elastic demand?
What occurs when an allocation is not efficient in a market?
What occurs when an allocation is not efficient in a market?
Which scenario illustrates an inefficient allocation in a market?
Which scenario illustrates an inefficient allocation in a market?
What is the primary focus of a social planner in the discussion of market efficiency?
What is the primary focus of a social planner in the discussion of market efficiency?
What do policymakers consider in addition to efficiency when evaluating the market?
What do policymakers consider in addition to efficiency when evaluating the market?
When a market achieves equilibrium, what determines buyer and seller participation?
When a market achieves equilibrium, what determines buyer and seller participation?
How does one evaluate if a market allocation is efficient?
How does one evaluate if a market allocation is efficient?
What does the concept of market 'pie' refer to in economic terms?
What does the concept of market 'pie' refer to in economic terms?
What does equity primarily concern in economic context?
What does equity primarily concern in economic context?
What does it mean when the price elasticity of demand is reported as a positive number?
What does it mean when the price elasticity of demand is reported as a positive number?
If the price of an ice cream cone increases by 10% and the quantity demanded falls by 20%, what is the price elasticity of demand?
If the price of an ice cream cone increases by 10% and the quantity demanded falls by 20%, what is the price elasticity of demand?
Why is the price elasticity of demand sometimes reported as negative?
Why is the price elasticity of demand sometimes reported as negative?
What problem arises when calculating the price elasticity of demand between two points on a demand curve?
What problem arises when calculating the price elasticity of demand between two points on a demand curve?
When using the common practice of dropping the minus sign in price elasticity calculations, what does this signify?
When using the common practice of dropping the minus sign in price elasticity calculations, what does this signify?
What does a price elasticity of demand value greater than 1 indicate?
What does a price elasticity of demand value greater than 1 indicate?
If a good has a price elasticity of demand of 0.5, what does this imply?
If a good has a price elasticity of demand of 0.5, what does this imply?
Which of the following does not accurately describe the relationship between price changes and quantity demanded?
Which of the following does not accurately describe the relationship between price changes and quantity demanded?
What happens to the demand curve if there is an increase in demand?
What happens to the demand curve if there is an increase in demand?
Which of the following scenarios would likely cause a decrease in demand for a product?
Which of the following scenarios would likely cause a decrease in demand for a product?
If consumers learn that eating a certain food item has health benefits, what is likely to happen to the demand for that food item?
If consumers learn that eating a certain food item has health benefits, what is likely to happen to the demand for that food item?
What is indicated by a leftward shift in the demand curve?
What is indicated by a leftward shift in the demand curve?
In the context of demand curves, what does dynamism refer to?
In the context of demand curves, what does dynamism refer to?
Study Notes
Market Efficiency
- An efficient allocation of resources maximizes the total surplus.
- If an allocation is not efficient, some gains from trade are not being realized.
- One example of inefficiency is when production is not at the lowest cost.
- Equity, fairness in the distribution of well-being, is another important consideration for social planners.
Evaluating the Market
- Figure 7.7 illustrates consumer and producer surplus in a market at equilibrium.
- Equilibrium is when the price determines which buyers and sellers participate.
The Elasticity of Demand
- Elasticity measures how much buyers and sellers respond to changes in market conditions.
- Price elasticity of demand measures the response in quantity demanded to a change in price.
Elasticity of Demand: Determinants
- Availability of substitutes: Goods with close substitutes tend to have a more elastic demand.
- Necessities vs. luxuries: Necessities have an inelastic demand while luxuries have an elastic demand.
- Market definition: Narrowly defined markets tend to have more elastic demand due to easier substitution.
- Time horizon: Goods have more elastic demand over longer time horizons.
The Elasticity of Demand: Computation
- Elasticity is calculated as the percentage change in quantity demanded divided by the percentage change in price.
- A larger price elasticity implies greater responsiveness of quantity demanded to price changes.
- The midpoint method helps to address the issue of the elasticity being different depending on the direction of the calculation (from A to B versus from B to A).
Shifts in the Demand Curve
- An increase in demand shifts the demand curve to the right.
- A decrease in demand shifts the demand curve to the left.
- Factors affecting demand can influence shifts:
- Consumer income
- Price of related goods
- Tastes
- Population
- Expectations
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Description
This quiz covers key concepts from Economics Chapter 5, focusing on market efficiency, consumer and producer surplus, and the elasticity of demand. Topics include how resources are allocated and the determinants of demand elasticity. Test your understanding of how market conditions affect buyer and seller behavior.
