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Questions and Answers
What happens to the demand curve when there are favorable changes in non-price factors?
What happens to the demand curve when there are favorable changes in non-price factors?
When the supply curve shifts inward, what is this change referred to?
When the supply curve shifts inward, what is this change referred to?
Which of the following is a factor that can cause a shift in the demand curve?
Which of the following is a factor that can cause a shift in the demand curve?
What is described as the market price where the quantity of goods supplied equals the quantity demanded?
What is described as the market price where the quantity of goods supplied equals the quantity demanded?
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An increase in which of the following leads to an outward shift of the supply curve?
An increase in which of the following leads to an outward shift of the supply curve?
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What is the result of unfavorable changes in non-price factors affecting demand?
What is the result of unfavorable changes in non-price factors affecting demand?
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Which of the following would likely cause a decrease in the demand for a product?
Which of the following would likely cause a decrease in the demand for a product?
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If the cost of production decreases due to technological advancements, what is likely to happen to the supply curve?
If the cost of production decreases due to technological advancements, what is likely to happen to the supply curve?
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What is the relationship between advertising expenditure and demand for a commodity?
What is the relationship between advertising expenditure and demand for a commodity?
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Which component is not part of the definition of demand in economics?
Which component is not part of the definition of demand in economics?
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According to the law of demand, what happens when the price of a commodity rises?
According to the law of demand, what happens when the price of a commodity rises?
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Which assumption is NOT made in the law of demand?
Which assumption is NOT made in the law of demand?
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What effect can a change in the price of substitute goods have on demand?
What effect can a change in the price of substitute goods have on demand?
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Which factor is assumed to be unchanged when analyzing the law of demand?
Which factor is assumed to be unchanged when analyzing the law of demand?
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Why is the assumption of constant consumer income important in the law of demand?
Why is the assumption of constant consumer income important in the law of demand?
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What does the law of demand imply about consumer behavior when prices increase?
What does the law of demand imply about consumer behavior when prices increase?
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What is the general relationship between income level and elasticity of demand?
What is the general relationship between income level and elasticity of demand?
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How does postponing consumption affect the elasticity of demand for a commodity?
How does postponing consumption affect the elasticity of demand for a commodity?
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In the short run, how is the elasticity of demand generally characterized?
In the short run, how is the elasticity of demand generally characterized?
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What is a key method for measuring price elasticity of demand?
What is a key method for measuring price elasticity of demand?
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What characterizes the demand curve faced by an oligopoly firm?
What characterizes the demand curve faced by an oligopoly firm?
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What happens to demand elasticity in the long run as compared to the short run?
What happens to demand elasticity in the long run as compared to the short run?
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What does the kink in the oligopoly demand curve represent?
What does the kink in the oligopoly demand curve represent?
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Which type of commodities typically show inelastic demand?
Which type of commodities typically show inelastic demand?
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How is elasticity of demand defined?
How is elasticity of demand defined?
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What is the formula for calculating price elasticity of demand?
What is the formula for calculating price elasticity of demand?
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What term describes the elasticity of demand being affected by the time period considered?
What term describes the elasticity of demand being affected by the time period considered?
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Which factor influences whether demand is elastic or inelastic?
Which factor influences whether demand is elastic or inelastic?
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What is typically the sign of price elasticity of demand for most commodities?
What is typically the sign of price elasticity of demand for most commodities?
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In which scenario is market demand and supply used to determine the price of a commodity?
In which scenario is market demand and supply used to determine the price of a commodity?
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What role does elasticity of demand play in business decision making?
What role does elasticity of demand play in business decision making?
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Which statement is true regarding the oligopoly demand curve?
Which statement is true regarding the oligopoly demand curve?
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What is the primary goal of demand forecasting in business planning?
What is the primary goal of demand forecasting in business planning?
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Which method involves plotting sales data on a graph and drawing a free hand curve?
Which method involves plotting sales data on a graph and drawing a free hand curve?
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In the least square method, what does the equation $y = a + bx$ represent?
In the least square method, what does the equation $y = a + bx$ represent?
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What do the normal equations in the least square method help to determine?
What do the normal equations in the least square method help to determine?
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Which forecasting method involves statistical analysis to predict dependent variable values?
Which forecasting method involves statistical analysis to predict dependent variable values?
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What role does historical data play in regression methods?
What role does historical data play in regression methods?
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Which of the following statements about demand forecasting is FALSE?
Which of the following statements about demand forecasting is FALSE?
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What is a common characteristic of the regression method?
What is a common characteristic of the regression method?
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Study Notes
Shifts / Changes in Demand
- Demand shifts occur due to changes in non-price factors, including:
- Income
- Population
- Government policies
- Tastes and preferences
- Habits
- Fashion
- Favorable changes increase demand, shifting the curve outwards
- Unfavorable changes decrease demand, shifting the curve inwards
Shifts / Changes in Supply
- Supply shifts occur due to changes in non-price factors, including:
- Cost of production
- Government policies
- State of technology
- Favorable changes increase supply, shifting the curve outwards
- Unfavorable changes decrease supply, shifting the curve inwards
Shifts in Equilibrium
- Equilibrium price occurs where quantity supplied equals quantity demanded
- Advertising expenditure influences a commodity's demand, with a positive relationship between advertising and demand
Meaning of Demand
- Demand in economics is not just desire for a commodity, but also the willingness and ability to pay for it
The Law of Demand
- Developed by Alfred Marshall in 1892
- States that price and quantity demanded have an inverse relationship; as price rises, demand falls
- Assumptions:
- Consumers' income remains constant
- Prices of substitute and complement goods remain constant
- Consumers' tastes and preferences remain constant
- There's no expectation of future price change
Oligopoly Demand Curve
- Indeterminate for a firm due to uncertain behavior of a producer in an oligopoly market
- Kinked in nature
- Kink formed at a prevailing price level
- Segment above the prevailing price level is highly elastic
- Segment below the prevailing price level is inelastic
Elasticity of Demand
- Measures the responsiveness of one variable to changes in another variable
- For demand, measures the responsiveness of quantity demanded to changes in price, income, or prices of related goods
Price Elasticity of Demand
- Shows the degree of responsiveness of quantity demanded to a change in price, holding other demand determinants constant
- Ratio of percentage change in quantity demanded to percentage change in price
- Value is always negative due to the inverse relationship between quantity demanded and price
- Factors Influencing Price Elasticity of Demand
- Availability of substitutes
- Nature of commodity
- Consumer's income
- Postponement of consumption
- Time period
Measurements of Price Elasticity of Demand
- Percentage Method
- Developed by Alfred Marshall
- Calculates price elasticity by dividing the percentage change in quantity demanded by the percentage change in price
Demand Forecasting
- Uses trends to get a general idea about the future
- Methods
- Graphical method
- Least Square Method
- Regression method
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Description
This quiz covers the shifts and changes in demand and supply within the context of economics. It explores the factors that lead to these shifts, how equilibrium is established, and the impact of advertising on demand. Test your knowledge on these fundamental concepts in economics.
