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Questions and Answers
What term describes the economic principle where demand increases when prices decrease?
What term describes the economic principle where demand increases when prices decrease?
- Market Equilibrium
- Demand Elasticity (correct)
- Supply Elasticity
- Price Sensitivity
Which factor is most likely to shift the demand curve to the right?
Which factor is most likely to shift the demand curve to the right?
- An increase in the price of complements
- An increase in consumer income (correct)
- A decrease in the price of substitutes
- A decrease in population
Which of the following describes the situation when there is a surplus in the market?
Which of the following describes the situation when there is a surplus in the market?
- Supply exceeds demand (correct)
- Demand exceeds supply
- Price is below equilibrium
- Price is above equilibrium (correct)
What is an example of a negative externality?
What is an example of a negative externality?
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What typically happens when a price ceiling is set below the equilibrium price?
What typically happens when a price ceiling is set below the equilibrium price?
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Study Notes
Demand and Price Relationship
- Inverse Relationship: When the price of a good decreases, demand increases.
- Law of Demand: Explains this relationship between price and quantity demanded.
Shifting Demand Curves
- Increased Consumer Income: If consumers have more money, they are more likely to buy goods and services, shifting demand to the right.
Market Surpluses
- Excess Supply: When quantity supplied exceeds quantity demanded.
- Price Adjustments: Forces the market to lower prices to reduce the surplus and encourage demand.
Negative Externalities
- Harmful Side Effects: Occur when production or consumption of a good harms those not directly involved in the market.
- Example: Air pollution from a factory impacting nearby residents' health.
Price Ceilings
- Set Below Equilibrium: The price ceiling is a maximum price set by the government.
- Shortages: Creates shortages as the quantity demanded exceeds the quantity supplied at the controlled price.
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Description
Test your knowledge on fundamental economic principles with this quiz. Questions cover concepts such as demand curves, externalities, and market equilibrium. Ideal for students studying economics or anyone interested in understanding market dynamics.
