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Questions and Answers
The price elasticity of supply for drugs is primarily elastic.
The price elasticity of supply for drugs is primarily elastic.
False
An increase in the price of drugs leads to a proportionate decrease in the quantity of drugs sold.
An increase in the price of drugs leads to a proportionate decrease in the quantity of drugs sold.
False
Higher spending on drugs typically correlates with an increase in drug-related crime.
Higher spending on drugs typically correlates with an increase in drug-related crime.
True
Education has no impact on reducing drug-related crime.
Education has no impact on reducing drug-related crime.
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The demand for drugs is considered elastic due to its luxury nature.
The demand for drugs is considered elastic due to its luxury nature.
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Total spending on drugs increases as prices rise due to inelastic demand.
Total spending on drugs increases as prices rise due to inelastic demand.
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Interdiction of drug supply always results in a decrease in drug-related crime.
Interdiction of drug supply always results in a decrease in drug-related crime.
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The initial value of drug-related crime decreases with a rise in drug prices.
The initial value of drug-related crime decreases with a rise in drug prices.
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Education increases the demand for drugs.
Education increases the demand for drugs.
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When the price of drugs decreases, total spending on drugs increases.
When the price of drugs decreases, total spending on drugs increases.
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Price elasticity of supply measures the responsiveness of quantity supplied to a change in price.
Price elasticity of supply measures the responsiveness of quantity supplied to a change in price.
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A decrease in drug-related crime is a result of increased demand for drugs.
A decrease in drug-related crime is a result of increased demand for drugs.
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The midpoint method is used to calculate percentage changes in price elasticity.
The midpoint method is used to calculate percentage changes in price elasticity.
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An increase in education results in an increase in total spending on drugs.
An increase in education results in an increase in total spending on drugs.
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Price elasticity of supply indicates sellers' sensitivity to price changes.
Price elasticity of supply indicates sellers' sensitivity to price changes.
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Lower drug prices and a decrease in quantity supplied can result from a higher demand for drugs.
Lower drug prices and a decrease in quantity supplied can result from a higher demand for drugs.
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A 10% increase in the price of insulin will lead to a rise in total expenditure on insulin if the demand is inelastic.
A 10% increase in the price of insulin will lead to a rise in total expenditure on insulin if the demand is inelastic.
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A fare war resulting in a 20% drop in luxury cruise prices would decrease total revenue for the cruise companies if demand is elastic.
A fare war resulting in a 20% drop in luxury cruise prices would decrease total revenue for the cruise companies if demand is elastic.
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The total dollar value of drug-related crime can be considered equal to total expenditure on drugs.
The total dollar value of drug-related crime can be considered equal to total expenditure on drugs.
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Demand for illegal drugs is considered elastic due to the addictive nature of the substances.
Demand for illegal drugs is considered elastic due to the addictive nature of the substances.
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If education programs successfully decrease drug demand, drug-related crime is likely to increase as a direct result.
If education programs successfully decrease drug demand, drug-related crime is likely to increase as a direct result.
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A price decrease in the market for drugs will inevitably increase total spending on drugs if the demand is elastic.
A price decrease in the market for drugs will inevitably increase total spending on drugs if the demand is elastic.
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Higher prices for luxury goods generally lead to lower demand in a market with elastic demand.
Higher prices for luxury goods generally lead to lower demand in a market with elastic demand.
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Inelastic demand for a good indicates that a change in price has little effect on the quantity demanded.
Inelastic demand for a good indicates that a change in price has little effect on the quantity demanded.
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Study Notes
Elasticity and its Application
- Elasticity measures how much one variable responds to changes in another variable.
- One type of elasticity measures how much demand for a product falls when its price rises.
- Elasticity is a numerical measure of the responsiveness of quantity demanded (Qd) or quantity supplied (Qs) to one of its determinants.
- Price elasticity of demand measures how much Qd responds to a change in price (P).
- Price elasticity of demand is calculated as the percentage change in Qd divided by the percentage change in P.
- Along a demand curve, price and quantity move in opposite directions.
- Price elasticity of demand is usually reported as a positive number.
- Calculating percentage changes: Use the midpoint method to calculate the percentage change. This method gives the same answer regardless of the direction of change.
- Factors determining price elasticity of demand: -Availability of close substitutes: Goods with many close substitutes tend to have higher price elasticities. -Definition of the market: Narrowly defined goods have higher price elasticities. -Time horizon: Price elasticity is generally higher in the long run than in the short run. -Necessity versus luxury: Necessities tend to have lower price elasticities than luxuries.
- Price elasticity of supply measures how much quantity supplied (Qs) responds to a change in price (P).
- Price elasticity of supply is calculated as the percentage change in Qs divided by the percentage change in P.
- Factors determining price elasticity of supply:
- Time horizon: Supply in the long run has a higher elasticity (firms can adjust capacity)
- A product with a price elasticity of 1 is considered unit elastic.
- A product with a price elasticity of more than 1 is said to be elastic.
- A product with a price elasticity of less than 1 is considered inelastic.
- Elasticity and Total Revenue: -If demand is elastic, a price increase will cause total revenue to fall. -If demand is inelastic, a price increase will cause total revenue to rise.
- Other Elasticities: -Income elasticity of demand measures the responsiveness of Qd to changes in consumer income. -Normal good: Income elasticity is greater than 1. -Inferior good: Income elasticity is less than 1 -Cross-price elasticity of demand measures the responsiveness of demand for a good to changes in the price of another good. -Substitutes: Cross-price elasticity is greater than 0. -Complements: Cross-price elasticity is less than 0.
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Description
This quiz tests your understanding of elasticity, particularly price elasticity of demand. You will learn how changes in price affect the quantity demanded and how to calculate elasticity using the midpoint method. Examine factors that influence elasticity and apply these concepts in real-world scenarios.
