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Questions and Answers
What occurs when preferences shift regarding the demand for a product?
What occurs when preferences shift regarding the demand for a product?
Which of the following best describes the effect of a substitute good's price decline?
Which of the following best describes the effect of a substitute good's price decline?
If interest rates fall, which is likely to happen to the demand curve for houses?
If interest rates fall, which is likely to happen to the demand curve for houses?
What term describes the total amount of a commodity that firms are willing and able to sell at a given price?
What term describes the total amount of a commodity that firms are willing and able to sell at a given price?
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What does the 'loss leader' strategy imply about pricing?
What does the 'loss leader' strategy imply about pricing?
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What happens when you experience a change in price with respect to the demand curve?
What happens when you experience a change in price with respect to the demand curve?
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If an increase in demand leads to consumers wanting more at higher prices, which direction does the demand curve shift?
If an increase in demand leads to consumers wanting more at higher prices, which direction does the demand curve shift?
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Which of the following factors determines the correct response to a price change in relation to the demand curve?
Which of the following factors determines the correct response to a price change in relation to the demand curve?
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What does a price elasticity of demand greater than 1 indicate?
What does a price elasticity of demand greater than 1 indicate?
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How does an increase in price affect total revenue when the demand is inelastic?
How does an increase in price affect total revenue when the demand is inelastic?
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What is the result of demand being perfectly elastic?
What is the result of demand being perfectly elastic?
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What does the slope represent when giving up 1 million bushels of wheat for a shirt and gaining only 1/4 million shirts?
What does the slope represent when giving up 1 million bushels of wheat for a shirt and gaining only 1/4 million shirts?
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Which of the following statements about income elasticity of demand is true for necessity goods?
Which of the following statements about income elasticity of demand is true for necessity goods?
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When the absolute value of the price elasticity of demand equals 1, demand is described as:
When the absolute value of the price elasticity of demand equals 1, demand is described as:
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What happens to total revenue when a price increase occurs under elastic demand conditions?
What happens to total revenue when a price increase occurs under elastic demand conditions?
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If a good has close substitutes available, how will its demand most likely behave?
If a good has close substitutes available, how will its demand most likely behave?
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For a good that is considered inferior, the income elasticity of demand will be:
For a good that is considered inferior, the income elasticity of demand will be:
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What indicates that demand is relatively less elastic?
What indicates that demand is relatively less elastic?
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What does the cross-price elasticity of demand measure?
What does the cross-price elasticity of demand measure?
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When calculating price elasticity of supply, what is the formula used?
When calculating price elasticity of supply, what is the formula used?
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In the context of total revenue, what does the price effect refer to?
In the context of total revenue, what does the price effect refer to?
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What primarily determines the supply of a good?
What primarily determines the supply of a good?
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What happens to the supply curve when there is a decrease in production costs?
What happens to the supply curve when there is a decrease in production costs?
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Which of the following factors can cause a shift in the demand curve?
Which of the following factors can cause a shift in the demand curve?
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If the price of a substitute good increases, what is likely to happen to the demand for the original good?
If the price of a substitute good increases, what is likely to happen to the demand for the original good?
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What does a price elasticity of supply value of -1.09 indicate?
What does a price elasticity of supply value of -1.09 indicate?
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Which of the following is a factor that does NOT affect price elasticity of supply?
Which of the following is a factor that does NOT affect price elasticity of supply?
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What occurs when the transaction price is lower than the equilibrium price?
What occurs when the transaction price is lower than the equilibrium price?
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What is the effect of rising productivity on supply?
What is the effect of rising productivity on supply?
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If the price of a good increases by 10% and the price elasticity of demand is -2.5, what will be the expected change in quantity demanded?
If the price of a good increases by 10% and the price elasticity of demand is -2.5, what will be the expected change in quantity demanded?
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How does an increase in the number of sellers in a market affect the supply curve?
How does an increase in the number of sellers in a market affect the supply curve?
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What is indicated if a good has a positive income elasticity of demand greater than 1?
What is indicated if a good has a positive income elasticity of demand greater than 1?
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What would likely happen to the demand for cell phones if the price of landline services significantly increases?
What would likely happen to the demand for cell phones if the price of landline services significantly increases?
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How is cross-price elasticity of demand defined?
How is cross-price elasticity of demand defined?
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What does it mean if the price elasticity of demand has an absolute value greater than one?
What does it mean if the price elasticity of demand has an absolute value greater than one?
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In the case of a surplus in the market, what will firms do in response?
In the case of a surplus in the market, what will firms do in response?
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What characterizes a price taker in a market?
What characterizes a price taker in a market?
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If a good experiences a price increase and the quantity supplied increases from 90 million to 100 million units when the price rises from $1 to $1.20, what is the elasticity of supply using the midpoint method?
If a good experiences a price increase and the quantity supplied increases from 90 million to 100 million units when the price rises from $1 to $1.20, what is the elasticity of supply using the midpoint method?
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What type of goods are considered complements?
What type of goods are considered complements?
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Which formula represents the income elasticity of demand?
Which formula represents the income elasticity of demand?
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What happens to quantity supplied as the price of a good decreases?
What happens to quantity supplied as the price of a good decreases?
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What happens to total revenue if the price increases while the demand is elastic?
What happens to total revenue if the price increases while the demand is elastic?
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When does demand become less elastic?
When does demand become less elastic?
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What does a bowed-out production possibilities frontier represent?
What does a bowed-out production possibilities frontier represent?
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Which of the following best defines equilibrium quantity?
Which of the following best defines equilibrium quantity?
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What is indicated if a good has an income elasticity of demand that is negative?
What is indicated if a good has an income elasticity of demand that is negative?
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What type of good experiences increased demand as income rises?
What type of good experiences increased demand as income rises?
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If the price elasticity of demand is -1.5 and the price decreases by 2%, what will happen to the quantity demanded?
If the price elasticity of demand is -1.5 and the price decreases by 2%, what will happen to the quantity demanded?
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If a consumer's quantity demanded changes significantly with a small price change, what characteristic does the demand have?
If a consumer's quantity demanded changes significantly with a small price change, what characteristic does the demand have?
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What happens to total revenue when demand is elastic and the price is raised?
What happens to total revenue when demand is elastic and the price is raised?
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How is unit elastic demand characterized?
How is unit elastic demand characterized?
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Which of the following factors is most likely to increase the price elasticity of demand for a product?
Which of the following factors is most likely to increase the price elasticity of demand for a product?
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What is indicated by a vertical demand curve?
What is indicated by a vertical demand curve?
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What happens to total revenue when price decreases and demand is elastic?
What happens to total revenue when price decreases and demand is elastic?
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In which circumstance is demand considered inelastic?
In which circumstance is demand considered inelastic?
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What does the midpoint method help calculate?
What does the midpoint method help calculate?
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If a good has an income elasticity of demand greater than 1, it is classified as which type of good?
If a good has an income elasticity of demand greater than 1, it is classified as which type of good?
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What effect does the price of a product with close substitutes have on its demand?
What effect does the price of a product with close substitutes have on its demand?
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Which of the following correctly describes cross price elasticity of demand?
Which of the following correctly describes cross price elasticity of demand?
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When is demand said to be perfectly inelastic?
When is demand said to be perfectly inelastic?
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If a good is classified as a necessity, what is its expected income elasticity of demand?
If a good is classified as a necessity, what is its expected income elasticity of demand?
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How do distant substitutes affect demand elasticity?
How do distant substitutes affect demand elasticity?
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What is a key characteristic of inelastic demand?
What is a key characteristic of inelastic demand?
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Study Notes
Demand and Supply
- Demand: Represents consumer choices and behavior. It's a relationship between price and quantity demanded (Qd) at a given time.
- Demand Curve: Shows the relationship between price (independent variable) and Qd (dependent variable).
- Demand Shift: Caused by changes in non-price determinants like income, preferences, prices of related goods (substitutes or complements). A shift in the curve indicates a change in the entire demand function.
- Movement Along Curve: Caused by changes in price itself. Indicates changes in quantity demanded corresponding to changes in price (along the same demand curve).
- Non-Price Determinants of Demand (5): Consumer preferences, prices of related goods, income, expectations, and the number of buyers.
Supply
- Supply: Represents producer choices and behavior. It's a relationship between price and quantity supplied (Qs) at a given time.
- Supply Curve: Shows the relationship between price (independent variable) and Qs (dependent variable).
- Supply Shift: Caused by changes in non-price determinants like input prices, technology, producer expectations, and the number of sellers. Shifts reflect changes in the entire supply function.
- Movement Along Curve: Caused by changes in price itself. Shows changes in Qs corresponding to changes in price (along the same supply curve).
- Non-Price Determinants of Supply (5): Prices of related goods (input prices—e.g. cost of raw material), technology, input prices, producer expectations, and the number of sellers.
Equilibrium
- Equilibrium Price: The prevailing price where Qd and Qs intersect. This is the market-clearing price where there's no surplus or shortage.
- Equilibrium Quantity: The quantity exchanged at the equilibrium price.
- Surplus: When Qs > Qd; prices will fall to restore equilibrium.
- Shortage: When Qs < Qd; prices will rise to restore equilibrium.
Elasticity
-
Price Elasticity of Demand (PED): Measures how responsive quantity demanded is to a change in price.
- Elastic: PED > 1 (quantity demanded changes more than price).
- Inelastic: PED < 1 (quantity demanded changes less than price).
- Unit Elastic: PED = 1 (quantity demanded changes proportionally to price).
- Price Elasticity of Supply (PES): Measures how responsive quantity supplied is to a change in price. Also follows greater than, less than, equal to concepts.
- Cross-Price Elasticity of Demand: Measures how consumers' demand for one good changes when price of another good changes.
- Factors Affecting PED & PES: Availability of substitutes, relative need vs. cost, time to adjust to changes.
Other Concepts
- Production Possibilities Frontier (PPF): Illustrates attainable output combinations of different variables.
- Total Revenue: Price multiplied by quantity sold; affected by PED (elastic vs inelastic).
- Mid-point Method: Accurately calculates percentage changes in prices/quantities in elasticity calculations.
- Substitutes: Goods consumers perceive as similar, and use in replacement.
- Complements: Goods used together (e.g., printer and ink cartridges).
- Inferior Goods: Demand decreases as consumer incomes increase.
- Normal Goods: Demand increases as consumer incomes increase.
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Description
Test your understanding of demand principles in economics with this engaging quiz. Explore concepts related to shifts in demand, elasticity, and pricing strategies. Perfect for students looking to reinforce their knowledge on the demand curve and related factors.
