196 Questions
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
What is the characteristic of elastic demand?
A small price change causes a significant change in quantity demanded
Which of the following makes demand more elastic?
Availability of substitutes
What is the characteristic of inelastic supply?
The capacity to increase production is limited, making supply less responsive to price changes
What does cross elasticity of demand measure?
How the quantity demanded of one good responds to the price change of another good
What is an example of a complementary good?
Cars and fuel
What is the characteristic of a normal good?
Positive income elasticity
Why is understanding elasticity important for businesses?
To make more informed decisions regarding pricing strategies and production adjustments
What is the effect of a longer time period on elasticity of supply?
It makes supply more elastic
What is the effect of an increase in consumer income on the demand for inferior goods?
It decreases the demand
What is the primary role of understanding relationships between markets in economics?
To analyze how changes in one market affect others
What do relative prices represent in economics?
The cost of one good or service in terms of another
What is the effect of higher prices on supply, according to the Law of Supply?
Increased production and supply
What is the effect of an increase in the price of a good on its demand, assuming it is elastic?
Demand decreases
What is the effect of a decrease in the price of a good on the demand for its complement?
Demand for the complement increases
What is the primary objective of most businesses?
Profit maximization
How do production costs and revenue impact a firm's profit, according to the economic framework of businesses?
They have both short-run and long-run implications for profit
What is the effect of an increase in the price of a substitute good on the demand for the original good?
Demand for the original good increases
What is the main difference between accounting profit and economic profit?
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.
What is the purpose of calculating normal profit?
To determine the minimum profit needed for sustainability
What is the definition of fixed costs?
Costs that do not vary with the level of output
What is the formula for calculating average total cost?
TC divided by Q
What is the term for the cost of producing one additional unit of output?
Marginal cost
What occurs when increasing the scale of production leads to a lower cost per unit?
Economies of scale
What is the term for the total income from sales?
Total revenue
What is the formula for calculating marginal revenue?
Change in TR when one more unit is produced
What is the definition of profit?
TR minus TC
What is the main concept of price elasticity?
How the quantity demanded changes in response to a change in price
What is the primary role of understanding relationships between markets in economics?
To understand how changes in one market affect others
What does the Law of Supply state?
Higher prices encourage increased production and supply
What happens to the demand for a good when its price increases, assuming it is elastic?
Demand decreases
What is the primary objective of most businesses?
Profit maximization
How do production costs and revenue impact a firm's profit?
The relationship between cost, revenue, and profitability is crucial
What happens to the demand for a good when the price of its substitute decreases?
Demand increases
What is the effect of a decrease in the price of a good on the demand for its complement?
Demand increases
Why are relative prices important in economics?
They influence consumer and producer decisions
What happens to the quantity demanded when the price elasticity of demand is unit elastic?
The percentage change in quantity demanded is equal to the percentage change in price.
Which of the following affects the price elasticity of supply?
Availability of production resources
What is the cross elasticity of demand between two complementary goods?
Negative
What happens to the demand for an inferior good when consumer income increases?
The demand decreases
Which of the following is an example of an inferior good?
Generic brands
What is the primary role of understanding elasticity in businesses?
To set prices that optimize revenue
When is the demand for a good more elastic?
When there are many substitutes
What happens to the supply of a good when the price elasticity of supply is elastic?
The supply increases significantly
What is the effect of a longer time period on the price elasticity of demand?
The demand becomes more elastic
Which of the following is an example of a normal good?
Quality clothing
What is the primary difference between accounting profit and economic profit?
Accounting profit only considers explicit costs, whereas economic profit considers both explicit and implicit costs.
What is the purpose of calculating normal profit?
To calculate the minimum profit needed for sustainability.
What is the term for the cost of producing one additional unit of output?
Marginal cost
What occurs when increasing the scale of production leads to a lower cost per unit?
Economies of scale
What is the term for the total income from sales?
Revenue
What is the formula for calculating marginal revenue?
MR = ΔTR / ΔQ
What is the definition of fixed costs?
Costs that do not vary with the level of output
What is the formula for calculating average total cost?
ATC = TC / Q
What is the primary objective of most businesses?
To maximize profits
What is the effect of an increase in the price of a good on its demand, assuming it is elastic?
Demand decreases
What is the primary role of understanding relationships between markets in economics?
To analyze how changes in one market affect others
What is the effect of higher prices on demand, assuming the good is elastic?
Demand decreases
What is the effect of an increase in the price of a good on the demand for its substitute?
Demand for the substitute increases
What do relative prices represent in economics?
The ratio of the price of one good to another
What is the primary objective of most businesses?
Profit maximization
What is the effect of an increase in the price of a good on the demand for its complement?
Demand for the complement decreases
What is the effect of higher prices on supply, according to the Law of Supply?
Supply increases
How do production costs and revenue impact a firm's profit, according to the economic framework of businesses?
Costs and revenue are directly related
What is the price elasticity of demand when the quantity demanded is relatively insensitive to price changes?
Inelastic
What happens to the demand for a good when its price increases, assuming it has an elastic demand?
The demand decreases significantly
Which of the following factors makes demand more elastic?
Availability of substitutes
What is the characteristic of a luxury good?
It has an elastic demand
What is the effect of a longer time period on the price elasticity of demand?
It becomes more elastic
What is the characteristic of an elastic supply?
Suppliers can increase output without a significant rise in cost
What is the cross elasticity of demand between two substitute goods?
Positive
What is the effect of an increase in consumer income on the demand for a normal good?
The demand increases
What is the main difference between accounting profit and economic profit?
Accounting profit only considers explicit costs, while economic profit considers both explicit and implicit costs
What does the average fixed cost (AFC) represent?
The fixed cost divided by the quantity of output
What is the primary role of understanding elasticity in businesses?
To set prices that optimize revenue
What is the effect of an increase in the price of a good on its complement?
The demand for the complement decreases
What is the purpose of calculating normal profit?
To determine the minimum profit needed for sustainability
What occurs when increasing the scale of production leads to a lower cost per unit?
Economies of scale
What is the formula for calculating marginal revenue?
MR = ΔTR / ΔQ
What is the definition of profit?
Total revenue minus total cost
What is the term for the cost of producing one additional unit of output?
Marginal cost
What is the effect of an increase in the price of a good on its demand, assuming it is elastic?
The demand will decrease
What is the primary objective of most businesses?
To maximize profit
What is the term for the total income from sales?
Total revenue
What type of profit does not account for implicit costs?
Accounting Profit
What is the term for costs that vary directly with the level of production?
Variable Costs
What is the term for the cost of producing one additional unit of output?
Marginal Cost
What happens when increasing the scale of production leads to a lower cost per unit?
Economies of Scale
What is the term for the total income from sales?
Total Revenue
What is the formula for calculating marginal revenue?
MR = ΔTR / ΔQ
What is the definition of profit?
TR - TC
What is the purpose of calculating normal profit?
To calculate the minimum profit needed for sustainability
What is the characteristic of increasing returns to scale?
Output increases by a greater proportion than inputs
Why are revenue and cost calculations important for businesses?
To maximize profits and make informed decisions
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?
Quantity demanded is relatively insensitive to price changes
Which of the following factors affects the price elasticity of supply?
Production Capacity
What is the relationship between the quantity demanded of two goods when they are substitutes?
Positive cross elasticity
What happens to the demand for a normal good when consumer income increases?
Demand increases
What is the effect of a longer time period on the price elasticity of demand?
Demand becomes more elastic
What is the primary role of understanding elasticity in businesses?
To make more informed decisions regarding pricing strategies and production adjustments
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?
A small change in price causes a significant change in quantity supplied
What is the relationship between the quantity demanded of a good and its price, when the price elasticity of demand is unit elastic?
The percentage change in quantity demanded is equal to the percentage change in price
What happens to the demand for an inferior good when consumer income decreases?
Demand increases
What is the primary role of understanding cross elasticity of demand?
To understand the interdependencies between different products
What is the primary objective of most businesses in the economic framework?
Maximize profit
Which of the following factors influences demand?
Consumer preferences
What is the relationship between the price of a good and its demand, according to the Law of Demand?
Higher prices decrease demand
What is the effect of a decrease in the price of a good on the demand for its substitute?
Demand for the substitute increases
What is the relationship between the price of a good and its supply, according to the Law of Supply?
Higher prices increase supply
What is the primary role of understanding relative prices in economics?
To compare the value of different goods
What is the effect of an increase in the price of a good on the demand for its complement?
Demand for the complement decreases
What is the relationship between the dynamics of markets and the economy?
Changes in one market affect other markets and the economy
What is the main difference between accounting profit and economic profit?
Economic profit accounts for opportunity costs, while accounting profit does not
What is the purpose of calculating average fixed cost?
To understand how fixed costs change with output
What occurs when a firm experiences increasing returns to scale?
Output increases by a greater proportion than inputs
What is the formula for calculating total revenue?
Price x Quantity
What is the term for the cost of producing one additional unit of output?
Marginal cost
What is normal profit?
The break-even point where a business makes just enough profit to continue operating
What is the purpose of calculating marginal revenue?
To determine the optimal level of output
What is the formula for calculating average variable cost?
Variable cost divided by quantity
What is the term for the total income from sales?
Total revenue
What occurs when a firm experiences economies of scale?
The cost per unit decreases
What is the primary role of understanding relationships between markets in economics?
To analyze how changes in one market affect others
What is the effect of higher prices on demand, according to the Law of Demand?
Higher prices decrease demand
What is the effect of an increase in the price of one good on the demand for its substitute?
Demand for the substitute increases
What is the primary objective of most businesses?
To maximize profit
How do changes in relative prices affect resource allocation in an economy?
Changes in relative prices influence consumer and producer decisions
What is the effect of a decrease in the price of a good on the demand for its complement?
Demand for the complement increases
Why are relative prices important in economics?
Because they influence consumer and producer decisions
What is the effect of an increase in the price of a good on its demand, assuming it is a normal good?
Demand decreases
What is the primary role of price elasticity of demand in a business?
To set prices that optimize revenue
When is the price elasticity of demand more elastic?
When the product consumes a larger portion of the consumer's income
What is the characteristic of inelastic demand?
Quantity demanded is relatively insensitive to price changes
What is the effect of a decrease in the price of a good on the demand for its substitute?
The demand for the substitute increases
What is the primary role of price elasticity of supply in a business?
To plan production levels
What is the characteristic of elastic supply?
Suppliers can increase output without a significant rise in cost
What is the cross elasticity of demand between two substitute goods?
Positive
What is the effect of an increase in consumer income on the demand for a normal good?
The demand increases
What is the primary role of understanding cross elasticity of demand in a business?
To analyze the interdependencies between different products
What is the effect of a longer time period on the price elasticity of demand?
The demand becomes more elastic
What is the primary difference between accounting profit and economic profit?
Accounting profit is calculated based on explicit costs, while economic profit is calculated based on opportunity costs.
What is the break-even point in a business?
The point where a business's total revenue equals its total costs.
What is the term for the cost of producing one additional unit of output?
Marginal cost
What occurs when increasing the scale of production leads to a lower cost per unit?
Economies of scale
What is the formula for calculating total revenue?
TR = P x Q
What is the term for the total income from sales?
Total revenue
What is the definition of profit?
TR - TC
What are fixed costs?
Costs that do not vary with the level of output
What is the purpose of calculating normal profit?
To determine the minimum profit needed for sustainability
What is the formula for calculating marginal revenue?
MR = ΔTR / ΔQ
What happens to the quantity demanded when the price of a good increases, assuming it is inelastic?
It decreases slightly
Which of the following products tend to have more elastic demand?
Luxuries
What is the effect of an increase in the price of a substitute good on the demand for the original good?
It increases
What happens to the supply of a good when the price elasticity of supply is inelastic?
It is difficult to increase production
What is the effect of an increase in consumer income on the demand for normal goods?
It increases
What is the cross elasticity of demand between two substitute goods?
Positive
What happens to the demand for a good when its price elasticity of demand is unit elastic?
It changes proportionally to the price change
What is the effect of a longer time period on the price elasticity of supply?
It increases
What is the primary role of understanding elasticity in businesses?
To set prices that optimize revenue
What happens to the demand for a good when the price of its complementary good increases?
It decreases
What is the primary objective of a business?
Profit maximization
What is the effect of a decrease in the price of a good on its demand, assuming it is a normal good?
Demand increases
What is the effect of an increase in the price of a good on its demand for its substitute?
Demand for the substitute increases
What is the role of relative prices in economics?
To influence consumer and producer decisions
What is the effect of a decrease in the price of a good on the demand for its complement?
Demand for the complement increases
What is the relationship between cost, revenue, and profitability in a business?
Profit is the difference between cost and revenue
What is the effect of higher prices on supply, according to the Law of Supply?
Supply increases
What is the effect of an increase in consumer income on the demand for a normal good?
Demand increases
What is the primary objective of most businesses?
Profit Maximization
What is the effect of higher prices on demand, according to the Law of Demand?
Decreases demand
What is the impact of an increase in the price of a good on the demand for its substitute?
Increases demand for the substitute
What is the relationship between revenue and profitability in the economic framework of businesses?
The relationship between revenue and profitability is complex and dependent on various factors
What is the effect of an increase in consumer income on the demand for a normal good?
Increases demand
What is the impact of a decrease in the price of a good on the demand for its complement?
Increases demand for the complement
What is the role of understanding relationships between markets in economics?
To analyze how changes in one market affect others
What is the effect of an increase in the price of a good on its supply, according to the Law of Supply?
Increases supply
What type of profit does not account for implicit costs such as opportunity costs?
Accounting Profit
Which of the following costs varies directly with the level of production?
Variable Costs
What is the term for the minimum profit needed for sustainability?
Normal Profit
What is the formula for calculating average total cost?
ATC = TC / Q
What occurs when increasing the scale of production leads to a lower cost per unit?
Economies of Scale
What is the term for the total income from sales?
Total Revenue
What is the formula for calculating marginal revenue?
MR = ΔTR / ΔQ
What is the definition of profit?
TR - TC
What is the term for the cost of producing one additional unit of output?
Marginal Cost
What is the primary objective of most businesses?
To maximize profit
What is the primary difference between elastic and inelastic demand?
Elastic demand is responsive to price changes, whereas inelastic demand is not.
What is the effect of a decrease in the price of a good on its demand, assuming it is elastic?
The demand increases.
Which of the following factors affects the price elasticity of demand?
Availability of substitutes.
What is the characteristic of a normal good?
Positive income elasticity.
What is the effect of an increase in consumer income on the demand for a normal good?
The demand increases.
What is the primary role of understanding elasticity in businesses?
To make informed decisions regarding pricing strategies and production adjustments.
What is the effect of a longer time period on the price elasticity of demand?
The demand becomes more elastic.
What is the cross elasticity of demand between two substitute goods?
Positive.
What is the primary difference between the price elasticity of demand and the price elasticity of supply?
Elasticity of demand measures responsiveness to changes in price, whereas elasticity of supply measures responsiveness to changes in income.
What is the effect of an increase in the price of a good on its demand, assuming it has an elastic supply?
The demand decreases.
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