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Questions and Answers
What is the equilibrium price and quantity from the given data on flashlights?
What is the equilibrium price and quantity from the given data on flashlights?
If the current price of flashlights is $5, what problem exists in the economy?
If the current price of flashlights is $5, what problem exists in the economy?
Which pair of goods would you expect to have more elastic demand?
Which pair of goods would you expect to have more elastic demand?
What is the immediate effect of John buying an Italian sports car on U.S. GDP?
What is the immediate effect of John buying an Italian sports car on U.S. GDP?
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How does a 'change in demand' differ from a 'change in quantity demanded'?
How does a 'change in demand' differ from a 'change in quantity demanded'?
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What would likely happen to flashlight prices if the supply exceeds demand at a current price of $5?
What would likely happen to flashlight prices if the supply exceeds demand at a current price of $5?
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Which combination of goods would show the least price elasticity of demand?
Which combination of goods would show the least price elasticity of demand?
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If Henry buys domestically produced tools for his construction company, what is the effect on U.S. GDP?
If Henry buys domestically produced tools for his construction company, what is the effect on U.S. GDP?
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Study Notes
Demand and Supply
- The table shows the quantity of flashlights demanded and supplied at different prices.
- The demand curve slopes downward, meaning that as the price of flashlights decreases, the quantity demanded increases.
- The supply curve slopes upward, meaning that as the price of flashlights increases, the quantity supplied increases.
- The equilibrium price is $4, and the equilibrium quantity is 8,000 flashlights.
- When the price is $5, there is a surplus of flashlights, because the quantity supplied exceeds the quantity demanded. The price is expected to fall to reach equilibrium.
- When the price is $2, there is a shortage of flashlights, because the quantity demanded exceeds the quantity supplied. The price is expected to rise to reach equilibrium.
Price Elasticity of Demand
- The price elasticity of demand measures the responsiveness of the quantity demanded to a change in price.
- The demand for diamonds is more price elastic than the demand for water because diamonds are a luxury good, while water is a necessity.
- The demand for insulin is more price inelastic than the demand for nasal decongestant spray because insulin is a life-saving medication, while nasal decongestant spray is not.
- The demand for food in general is more price inelastic than the demand for breakfast cereal because food is a necessity, while breakfast cereal is not.
- The demand for gasoline over the course of a week is more price inelastic than the demand for gasoline over the course of a year because people have less time to adjust their consumption habits in the short term.
- The demand for personal computers is more price elastic than the demand for mobile phones because personal computers are a more expensive and durable good.
GDP
- GDP is the total value of all final goods and services produced in a country during a given period of time.
- James receiving a Social Security check does not affect GDP because it is a transfer payment, not a payment for a good or service.
- John buying an Italian sports car does not affect U.S. GDP because it is an import, not a domestically produced good.
- Henry buying domestically produced tools for his construction company does affect U.S. GDP because it is a purchase of a final good.
Changes in Demand and Quantity Demanded
- A change in demand is a shift in the entire demand curve, caused by a change in factors other than price, such as income, tastes, or the price of related goods.
- A change in quantity demanded is a movement along the demand curve, caused by a change in the price of the good itself.
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Description
This quiz covers essential concepts of demand and supply, including the equilibrium price and quantity, as well as the effects of price changes on surplus and shortage. Additionally, it explores the price elasticity of demand, illustrating how quantity demanded responds to price fluctuations. Test your understanding of these fundamental economic principles!
