June P2 Easy
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Questions and Answers

What does price elasticity of demand measure?

  • How much the quantity demanded of a good responds to a change in the price of that good (correct)
  • How much the price of a good responds to a change in the quantity demanded
  • How the quantity demanded of one good responds to the price change of another good
  • The responsiveness of quantity supplied to a change in price

    • What is the characteristic of elastic demand?

  • The percentage change in quantity demanded is equal to the percentage change in price
  • A small price change causes a significant change in quantity demanded (correct)
  • Quantity demanded is relatively insensitive to price changes
  • A large price change causes a small change in quantity demanded

    • Which of the following makes demand more elastic?

  • Increase in the price of the good
  • Decrease in consumer income
  • Availability of compliments
  • Availability of substitutes (correct)

    • What is the characteristic of inelastic supply?

    <p>The capacity to increase production is limited, making supply less responsive to price changes</p> Signup and view all the answers

    What does cross elasticity of demand measure?

    <p>How the quantity demanded of one good responds to the price change of another good</p> Signup and view all the answers

    What is an example of a complementary good?

    <p>Cars and fuel</p> Signup and view all the answers

    What is the characteristic of a normal good?

    <p>Positive income elasticity</p> Signup and view all the answers

    Why is understanding elasticity important for businesses?

    <p>To make more informed decisions regarding pricing strategies and production adjustments</p> Signup and view all the answers

    What is the effect of a longer time period on elasticity of supply?

    <p>It makes supply more elastic</p> Signup and view all the answers

    What is the effect of an increase in consumer income on the demand for inferior goods?

    <p>It decreases the demand</p> Signup and view all the answers

    What is the primary role of understanding relationships between markets in economics?

    <p>To analyze how changes in one market affect others</p> Signup and view all the answers

    What do relative prices represent in economics?

    <p>The cost of one good or service in terms of another</p> Signup and view all the answers

    What is the effect of higher prices on supply, according to the Law of Supply?

    <p>Increased production and supply</p> Signup and view all the answers

    What is the effect of an increase in the price of a good on its demand, assuming it is elastic?

    <p>Demand decreases</p> Signup and view all the answers

    What is the effect of a decrease in the price of a good on the demand for its complement?

    <p>Demand for the complement increases</p> Signup and view all the answers

    What is the primary objective of most businesses?

    <p>Profit maximization</p> Signup and view all the answers

    How do production costs and revenue impact a firm's profit, according to the economic framework of businesses?

    <p>They have both short-run and long-run implications for profit</p> Signup and view all the answers

    What is the effect of an increase in the price of a substitute good on the demand for the original good?

    <p>Demand for the original good increases</p> Signup and view all the answers

    What is the main difference between accounting profit and economic profit?

    <p>Accounting profit is calculated by subtracting explicit costs from total revenue, while economic profit is calculated by subtracting both explicit and implicit costs from total revenue.</p> Signup and view all the answers

    What is the purpose of calculating normal profit?

    <p>To determine the minimum profit needed for sustainability</p> Signup and view all the answers

    What is the definition of fixed costs?

    <p>Costs that do not vary with the level of output</p> Signup and view all the answers

    What is the formula for calculating average total cost?

    <p>TC divided by Q</p> Signup and view all the answers

    What is the term for the cost of producing one additional unit of output?

    <p>Marginal cost</p> Signup and view all the answers

    What occurs when increasing the scale of production leads to a lower cost per unit?

    <p>Economies of scale</p> Signup and view all the answers

    What is the term for the total income from sales?

    <p>Total revenue</p> Signup and view all the answers

    What is the formula for calculating marginal revenue?

    <p>Change in TR when one more unit is produced</p> Signup and view all the answers

    What is the definition of profit?

    <p>TR minus TC</p> Signup and view all the answers

    What is the main concept of price elasticity?

    <p>How the quantity demanded changes in response to a change in price</p> Signup and view all the answers

    What is the primary role of understanding relationships between markets in economics?

    <p>To understand how changes in one market affect others</p> Signup and view all the answers

    What does the Law of Supply state?

    <p>Higher prices encourage increased production and supply</p> Signup and view all the answers

    What happens to the demand for a good when its price increases, assuming it is elastic?

    <p>Demand decreases</p> Signup and view all the answers

    What is the primary objective of most businesses?

    <p>Profit maximization</p> Signup and view all the answers

    How do production costs and revenue impact a firm's profit?

    <p>The relationship between cost, revenue, and profitability is crucial</p> Signup and view all the answers

    What happens to the demand for a good when the price of its substitute decreases?

    <p>Demand increases</p> Signup and view all the answers

    What is the effect of a decrease in the price of a good on the demand for its complement?

    <p>Demand increases</p> Signup and view all the answers

    Why are relative prices important in economics?

    <p>They influence consumer and producer decisions</p> Signup and view all the answers

    What happens to the quantity demanded when the price elasticity of demand is unit elastic?

    <p>The percentage change in quantity demanded is equal to the percentage change in price.</p> Signup and view all the answers

    Which of the following affects the price elasticity of supply?

    <p>Availability of production resources</p> Signup and view all the answers

    What is the cross elasticity of demand between two complementary goods?

    <p>Negative</p> Signup and view all the answers

    What happens to the demand for an inferior good when consumer income increases?

    <p>The demand decreases</p> Signup and view all the answers

    Which of the following is an example of an inferior good?

    <p>Generic brands</p> Signup and view all the answers

    What is the primary role of understanding elasticity in businesses?

    <p>To set prices that optimize revenue</p> Signup and view all the answers

    When is the demand for a good more elastic?

    <p>When there are many substitutes</p> Signup and view all the answers

    What happens to the supply of a good when the price elasticity of supply is elastic?

    <p>The supply increases significantly</p> Signup and view all the answers

    What is the effect of a longer time period on the price elasticity of demand?

    <p>The demand becomes more elastic</p> Signup and view all the answers

    Which of the following is an example of a normal good?

    <p>Quality clothing</p> Signup and view all the answers

    What is the primary difference between accounting profit and economic profit?

    <p>Accounting profit only considers explicit costs, whereas economic profit considers both explicit and implicit costs.</p> Signup and view all the answers

    What is the purpose of calculating normal profit?

    <p>To calculate the minimum profit needed for sustainability.</p> Signup and view all the answers

    What is the term for the cost of producing one additional unit of output?

    <p>Marginal cost</p> Signup and view all the answers

    What occurs when increasing the scale of production leads to a lower cost per unit?

    <p>Economies of scale</p> Signup and view all the answers

    What is the term for the total income from sales?

    <p>Revenue</p> Signup and view all the answers

    What is the formula for calculating marginal revenue?

    <p>MR = ΔTR / ΔQ</p> Signup and view all the answers

    What is the definition of fixed costs?

    <p>Costs that do not vary with the level of output</p> Signup and view all the answers

    What is the formula for calculating average total cost?

    <p>ATC = TC / Q</p> Signup and view all the answers

    What is the primary objective of most businesses?

    <p>To maximize profits</p> Signup and view all the answers

    What is the effect of an increase in the price of a good on its demand, assuming it is elastic?

    <p>Demand decreases</p> Signup and view all the answers

    What is the primary role of understanding relationships between markets in economics?

    <p>To analyze how changes in one market affect others</p> Signup and view all the answers

    What is the effect of higher prices on demand, assuming the good is elastic?

    <p>Demand decreases</p> Signup and view all the answers

    What is the effect of an increase in the price of a good on the demand for its substitute?

    <p>Demand for the substitute increases</p> Signup and view all the answers

    What do relative prices represent in economics?

    <p>The ratio of the price of one good to another</p> Signup and view all the answers

    What is the primary objective of most businesses?

    <p>Profit maximization</p> Signup and view all the answers

    What is the effect of an increase in the price of a good on the demand for its complement?

    <p>Demand for the complement decreases</p> Signup and view all the answers

    What is the effect of higher prices on supply, according to the Law of Supply?

    <p>Supply increases</p> Signup and view all the answers

    How do production costs and revenue impact a firm's profit, according to the economic framework of businesses?

    <p>Costs and revenue are directly related</p> Signup and view all the answers

    What is the price elasticity of demand when the quantity demanded is relatively insensitive to price changes?

    <p>Inelastic</p> Signup and view all the answers

    What happens to the demand for a good when its price increases, assuming it has an elastic demand?

    <p>The demand decreases significantly</p> Signup and view all the answers

    Which of the following factors makes demand more elastic?

    <p>Availability of substitutes</p> Signup and view all the answers

    What is the characteristic of a luxury good?

    <p>It has an elastic demand</p> Signup and view all the answers

    What is the effect of a longer time period on the price elasticity of demand?

    <p>It becomes more elastic</p> Signup and view all the answers

    What is the characteristic of an elastic supply?

    <p>Suppliers can increase output without a significant rise in cost</p> Signup and view all the answers

    What is the cross elasticity of demand between two substitute goods?

    <p>Positive</p> Signup and view all the answers

    What is the effect of an increase in consumer income on the demand for a normal good?

    <p>The demand increases</p> Signup and view all the answers

    What is the main difference between accounting profit and economic profit?

    <p>Accounting profit only considers explicit costs, while economic profit considers both explicit and implicit costs</p> Signup and view all the answers

    What does the average fixed cost (AFC) represent?

    <p>The fixed cost divided by the quantity of output</p> Signup and view all the answers

    What is the primary role of understanding elasticity in businesses?

    <p>To set prices that optimize revenue</p> Signup and view all the answers

    What is the effect of an increase in the price of a good on its complement?

    <p>The demand for the complement decreases</p> Signup and view all the answers

    What is the purpose of calculating normal profit?

    <p>To determine the minimum profit needed for sustainability</p> Signup and view all the answers

    What occurs when increasing the scale of production leads to a lower cost per unit?

    <p>Economies of scale</p> Signup and view all the answers

    What is the formula for calculating marginal revenue?

    <p>MR = ΔTR / ΔQ</p> Signup and view all the answers

    What is the definition of profit?

    <p>Total revenue minus total cost</p> Signup and view all the answers

    What is the term for the cost of producing one additional unit of output?

    <p>Marginal cost</p> Signup and view all the answers

    What is the effect of an increase in the price of a good on its demand, assuming it is elastic?

    <p>The demand will decrease</p> Signup and view all the answers

    What is the primary objective of most businesses?

    <p>To maximize profit</p> Signup and view all the answers

    What is the term for the total income from sales?

    <p>Total revenue</p> Signup and view all the answers

    What type of profit does not account for implicit costs?

    <p>Accounting Profit</p> Signup and view all the answers

    What is the term for costs that vary directly with the level of production?

    <p>Variable Costs</p> Signup and view all the answers

    What is the term for the cost of producing one additional unit of output?

    <p>Marginal Cost</p> Signup and view all the answers

    What happens when increasing the scale of production leads to a lower cost per unit?

    <p>Economies of Scale</p> Signup and view all the answers

    What is the term for the total income from sales?

    <p>Total Revenue</p> Signup and view all the answers

    What is the formula for calculating marginal revenue?

    <p>MR = ΔTR / ΔQ</p> Signup and view all the answers

    What is the definition of profit?

    <p>TR - TC</p> Signup and view all the answers

    What is the purpose of calculating normal profit?

    <p>To calculate the minimum profit needed for sustainability</p> Signup and view all the answers

    What is the characteristic of increasing returns to scale?

    <p>Output increases by a greater proportion than inputs</p> Signup and view all the answers

    Why are revenue and cost calculations important for businesses?

    <p>To maximize profits and make informed decisions</p> Signup and view all the answers

    What is the effect of a change in the price of a good on its quantity demanded, when the price elasticity of demand is inelastic?

    <p>Quantity demanded is relatively insensitive to price changes</p> Signup and view all the answers

    Which of the following factors affects the price elasticity of supply?

    <p>Production Capacity</p> Signup and view all the answers

    What is the relationship between the quantity demanded of two goods when they are substitutes?

    <p>Positive cross elasticity</p> Signup and view all the answers

    What happens to the demand for a normal good when consumer income increases?

    <p>Demand increases</p> Signup and view all the answers

    What is the effect of a longer time period on the price elasticity of demand?

    <p>Demand becomes more elastic</p> Signup and view all the answers

    What is the primary role of understanding elasticity in businesses?

    <p>To make more informed decisions regarding pricing strategies and production adjustments</p> Signup and view all the answers

    What is the effect of an increase in the price of a good on its quantity supplied, when the price elasticity of supply is elastic?

    <p>A small change in price causes a significant change in quantity supplied</p> Signup and view all the answers

    What is the relationship between the quantity demanded of a good and its price, when the price elasticity of demand is unit elastic?

    <p>The percentage change in quantity demanded is equal to the percentage change in price</p> Signup and view all the answers

    What happens to the demand for an inferior good when consumer income decreases?

    <p>Demand increases</p> Signup and view all the answers

    What is the primary role of understanding cross elasticity of demand?

    <p>To understand the interdependencies between different products</p> Signup and view all the answers

    What is the primary objective of most businesses in the economic framework?

    <p>Maximize profit</p> Signup and view all the answers

    Which of the following factors influences demand?

    <p>Consumer preferences</p> Signup and view all the answers

    What is the relationship between the price of a good and its demand, according to the Law of Demand?

    <p>Higher prices decrease demand</p> Signup and view all the answers

    What is the effect of a decrease in the price of a good on the demand for its substitute?

    <p>Demand for the substitute increases</p> Signup and view all the answers

    What is the relationship between the price of a good and its supply, according to the Law of Supply?

    <p>Higher prices increase supply</p> Signup and view all the answers

    What is the primary role of understanding relative prices in economics?

    <p>To compare the value of different goods</p> Signup and view all the answers

    What is the effect of an increase in the price of a good on the demand for its complement?

    <p>Demand for the complement decreases</p> Signup and view all the answers

    What is the relationship between the dynamics of markets and the economy?

    <p>Changes in one market affect other markets and the economy</p> Signup and view all the answers

    What is the main difference between accounting profit and economic profit?

    <p>Economic profit accounts for opportunity costs, while accounting profit does not</p> Signup and view all the answers

    What is the purpose of calculating average fixed cost?

    <p>To understand how fixed costs change with output</p> Signup and view all the answers

    What occurs when a firm experiences increasing returns to scale?

    <p>Output increases by a greater proportion than inputs</p> Signup and view all the answers

    What is the formula for calculating total revenue?

    <p>Price x Quantity</p> Signup and view all the answers

    What is the term for the cost of producing one additional unit of output?

    <p>Marginal cost</p> Signup and view all the answers

    What is normal profit?

    <p>The break-even point where a business makes just enough profit to continue operating</p> Signup and view all the answers

    What is the purpose of calculating marginal revenue?

    <p>To determine the optimal level of output</p> Signup and view all the answers

    What is the formula for calculating average variable cost?

    <p>Variable cost divided by quantity</p> Signup and view all the answers

    What is the term for the total income from sales?

    <p>Total revenue</p> Signup and view all the answers

    What occurs when a firm experiences economies of scale?

    <p>The cost per unit decreases</p> Signup and view all the answers

    What is the primary role of understanding relationships between markets in economics?

    <p>To analyze how changes in one market affect others</p> Signup and view all the answers

    What is the effect of higher prices on demand, according to the Law of Demand?

    <p>Higher prices decrease demand</p> Signup and view all the answers

    What is the effect of an increase in the price of one good on the demand for its substitute?

    <p>Demand for the substitute increases</p> Signup and view all the answers

    What is the primary objective of most businesses?

    <p>To maximize profit</p> Signup and view all the answers

    How do changes in relative prices affect resource allocation in an economy?

    <p>Changes in relative prices influence consumer and producer decisions</p> Signup and view all the answers

    What is the effect of a decrease in the price of a good on the demand for its complement?

    <p>Demand for the complement increases</p> Signup and view all the answers

    Why are relative prices important in economics?

    <p>Because they influence consumer and producer decisions</p> Signup and view all the answers

    What is the effect of an increase in the price of a good on its demand, assuming it is a normal good?

    <p>Demand decreases</p> Signup and view all the answers

    What is the primary role of price elasticity of demand in a business?

    <p>To set prices that optimize revenue</p> Signup and view all the answers

    When is the price elasticity of demand more elastic?

    <p>When the product consumes a larger portion of the consumer's income</p> Signup and view all the answers

    What is the characteristic of inelastic demand?

    <p>Quantity demanded is relatively insensitive to price changes</p> Signup and view all the answers

    What is the effect of a decrease in the price of a good on the demand for its substitute?

    <p>The demand for the substitute increases</p> Signup and view all the answers

    What is the primary role of price elasticity of supply in a business?

    <p>To plan production levels</p> Signup and view all the answers

    What is the characteristic of elastic supply?

    <p>Suppliers can increase output without a significant rise in cost</p> Signup and view all the answers

    What is the cross elasticity of demand between two substitute goods?

    <p>Positive</p> Signup and view all the answers

    What is the effect of an increase in consumer income on the demand for a normal good?

    <p>The demand increases</p> Signup and view all the answers

    What is the primary role of understanding cross elasticity of demand in a business?

    <p>To analyze the interdependencies between different products</p> Signup and view all the answers

    What is the effect of a longer time period on the price elasticity of demand?

    <p>The demand becomes more elastic</p> Signup and view all the answers

    What is the primary difference between accounting profit and economic profit?

    <p>Accounting profit is calculated based on explicit costs, while economic profit is calculated based on opportunity costs.</p> Signup and view all the answers

    What is the break-even point in a business?

    <p>The point where a business's total revenue equals its total costs.</p> Signup and view all the answers

    What is the term for the cost of producing one additional unit of output?

    <p>Marginal cost</p> Signup and view all the answers

    What occurs when increasing the scale of production leads to a lower cost per unit?

    <p>Economies of scale</p> Signup and view all the answers

    What is the formula for calculating total revenue?

    <p>TR = P x Q</p> Signup and view all the answers

    What is the term for the total income from sales?

    <p>Total revenue</p> Signup and view all the answers

    What is the definition of profit?

    <p>TR - TC</p> Signup and view all the answers

    What are fixed costs?

    <p>Costs that do not vary with the level of output</p> Signup and view all the answers

    What is the purpose of calculating normal profit?

    <p>To determine the minimum profit needed for sustainability</p> Signup and view all the answers

    What is the formula for calculating marginal revenue?

    <p>MR = ΔTR / ΔQ</p> Signup and view all the answers

    What happens to the quantity demanded when the price of a good increases, assuming it is inelastic?

    <p>It decreases slightly</p> Signup and view all the answers

    Which of the following products tend to have more elastic demand?

    <p>Luxuries</p> Signup and view all the answers

    What is the effect of an increase in the price of a substitute good on the demand for the original good?

    <p>It increases</p> Signup and view all the answers

    What happens to the supply of a good when the price elasticity of supply is inelastic?

    <p>It is difficult to increase production</p> Signup and view all the answers

    What is the effect of an increase in consumer income on the demand for normal goods?

    <p>It increases</p> Signup and view all the answers

    What is the cross elasticity of demand between two substitute goods?

    <p>Positive</p> Signup and view all the answers

    What happens to the demand for a good when its price elasticity of demand is unit elastic?

    <p>It changes proportionally to the price change</p> Signup and view all the answers

    What is the effect of a longer time period on the price elasticity of supply?

    <p>It increases</p> Signup and view all the answers

    What is the primary role of understanding elasticity in businesses?

    <p>To set prices that optimize revenue</p> Signup and view all the answers

    What happens to the demand for a good when the price of its complementary good increases?

    <p>It decreases</p> Signup and view all the answers

    What is the primary objective of a business?

    <p>Profit maximization</p> Signup and view all the answers

    What is the effect of a decrease in the price of a good on its demand, assuming it is a normal good?

    <p>Demand increases</p> Signup and view all the answers

    What is the effect of an increase in the price of a good on its demand for its substitute?

    <p>Demand for the substitute increases</p> Signup and view all the answers

    What is the role of relative prices in economics?

    <p>To influence consumer and producer decisions</p> Signup and view all the answers

    What is the effect of a decrease in the price of a good on the demand for its complement?

    <p>Demand for the complement increases</p> Signup and view all the answers

    What is the relationship between cost, revenue, and profitability in a business?

    <p>Profit is the difference between cost and revenue</p> Signup and view all the answers

    What is the effect of higher prices on supply, according to the Law of Supply?

    <p>Supply increases</p> Signup and view all the answers

    What is the effect of an increase in consumer income on the demand for a normal good?

    <p>Demand increases</p> Signup and view all the answers

    What is the primary objective of most businesses?

    <p>Profit Maximization</p> Signup and view all the answers

    What is the effect of higher prices on demand, according to the Law of Demand?

    <p>Decreases demand</p> Signup and view all the answers

    What is the impact of an increase in the price of a good on the demand for its substitute?

    <p>Increases demand for the substitute</p> Signup and view all the answers

    What is the relationship between revenue and profitability in the economic framework of businesses?

    <p>The relationship between revenue and profitability is complex and dependent on various factors</p> Signup and view all the answers

    What is the effect of an increase in consumer income on the demand for a normal good?

    <p>Increases demand</p> Signup and view all the answers

    What is the impact of a decrease in the price of a good on the demand for its complement?

    <p>Increases demand for the complement</p> Signup and view all the answers

    What is the role of understanding relationships between markets in economics?

    <p>To analyze how changes in one market affect others</p> Signup and view all the answers

    What is the effect of an increase in the price of a good on its supply, according to the Law of Supply?

    <p>Increases supply</p> Signup and view all the answers

    What type of profit does not account for implicit costs such as opportunity costs?

    <p>Accounting Profit</p> Signup and view all the answers

    Which of the following costs varies directly with the level of production?

    <p>Variable Costs</p> Signup and view all the answers

    What is the term for the minimum profit needed for sustainability?

    <p>Normal Profit</p> Signup and view all the answers

    What is the formula for calculating average total cost?

    <p>ATC = TC / Q</p> Signup and view all the answers

    What occurs when increasing the scale of production leads to a lower cost per unit?

    <p>Economies of Scale</p> Signup and view all the answers

    What is the term for the total income from sales?

    <p>Total Revenue</p> Signup and view all the answers

    What is the formula for calculating marginal revenue?

    <p>MR = ΔTR / ΔQ</p> Signup and view all the answers

    What is the definition of profit?

    <p>TR - TC</p> Signup and view all the answers

    What is the term for the cost of producing one additional unit of output?

    <p>Marginal Cost</p> Signup and view all the answers

    What is the primary objective of most businesses?

    <p>To maximize profit</p> Signup and view all the answers

    What is the primary difference between elastic and inelastic demand?

    <p>Elastic demand is responsive to price changes, whereas inelastic demand is not.</p> Signup and view all the answers

    What is the effect of a decrease in the price of a good on its demand, assuming it is elastic?

    <p>The demand increases.</p> Signup and view all the answers

    Which of the following factors affects the price elasticity of demand?

    <p>Availability of substitutes.</p> Signup and view all the answers

    What is the characteristic of a normal good?

    <p>Positive income elasticity.</p> Signup and view all the answers

    What is the effect of an increase in consumer income on the demand for a normal good?

    <p>The demand increases.</p> Signup and view all the answers

    What is the primary role of understanding elasticity in businesses?

    <p>To make informed decisions regarding pricing strategies and production adjustments.</p> Signup and view all the answers

    What is the effect of a longer time period on the price elasticity of demand?

    <p>The demand becomes more elastic.</p> Signup and view all the answers

    What is the cross elasticity of demand between two substitute goods?

    <p>Positive.</p> Signup and view all the answers

    What is the primary difference between the price elasticity of demand and the price elasticity of supply?

    <p>Elasticity of demand measures responsiveness to changes in price, whereas elasticity of supply measures responsiveness to changes in income.</p> Signup and view all the answers

    What is the effect of an increase in the price of a good on its demand, assuming it has an elastic supply?

    <p>The demand decreases.</p> Signup and view all the answers

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