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Questions and Answers
What does income elasticity of demand generally measure?
What does income elasticity of demand generally measure?
- The responsiveness of demand to a change in income (correct)
- The change in price over time
- The average income level of consumers
- The proportion of durable goods in the market
Which category does income elasticity of demand for luxuries typically fall into?
Which category does income elasticity of demand for luxuries typically fall into?
- Greater than 1 (correct)
- Equal to 1
- Less than 0
- Between 0 and 1
In the context of elasticity, how does the short-run price elasticity of supply generally compare to the long-run price elasticity of supply?
In the context of elasticity, how does the short-run price elasticity of supply generally compare to the long-run price elasticity of supply?
- Irrelevant to demand and supply analyses
- Equal in both short-run and long-run
- Higher in the short-run
- Lower in the short-run (correct)
Which of the following correctly describes the typical relationship between short-run and long-run price elasticity of demand for durable goods?
Which of the following correctly describes the typical relationship between short-run and long-run price elasticity of demand for durable goods?
How does the price elasticity of demand for non-durable goods typically behave in the short-run compared to the long-run?
How does the price elasticity of demand for non-durable goods typically behave in the short-run compared to the long-run?
Which of these factors is NOT considered when analyzing income elasticity of demand?
Which of these factors is NOT considered when analyzing income elasticity of demand?
What indicates that a good is a necessity in terms of income elasticity of demand?
What indicates that a good is a necessity in terms of income elasticity of demand?
What is the main difference between durable and non-durable goods regarding elasticity?
What is the main difference between durable and non-durable goods regarding elasticity?
What would happen to the price of oil in the short run if oil production ceased?
What would happen to the price of oil in the short run if oil production ceased?
What is the projected price of oil in the long run, given the demand and supply curves provided?
What is the projected price of oil in the long run, given the demand and supply curves provided?
Which of the following statements is true regarding the elasticity of supply and demand in the long run compared to the short run?
Which of the following statements is true regarding the elasticity of supply and demand in the long run compared to the short run?
In the short-run supply equation, what is the effect of an increase in oil prices on the total supply?
In the short-run supply equation, what is the effect of an increase in oil prices on the total supply?
What distinguishes durable goods from non-durable goods in terms of income elasticity?
What distinguishes durable goods from non-durable goods in terms of income elasticity?
Based on the projected short-run demand equation, what would the demand for oil be if the price is $40 per barrel?
Based on the projected short-run demand equation, what would the demand for oil be if the price is $40 per barrel?
When the total supply in the short run is calculated at $0.07P, what happens when the price approaches $25 per barrel?
When the total supply in the short run is calculated at $0.07P, what happens when the price approaches $25 per barrel?
What are the primary measures one considers in price/consumption forecasting?
What are the primary measures one considers in price/consumption forecasting?
What is the long-run price elasticity of world demand for oil?
What is the long-run price elasticity of world demand for oil?
Which of the following represents the short-run competitive supply price elasticity?
Which of the following represents the short-run competitive supply price elasticity?
What is the total short-run supply equation given the assumptions in the data?
What is the total short-run supply equation given the assumptions in the data?
What is the value of 'a' in the long-run demand equation?
What is the value of 'a' in the long-run demand equation?
If world consumption of oil is 5.5 billion barrels per year, what percentage of total world production does Saudi Arabia account for?
If world consumption of oil is 5.5 billion barrels per year, what percentage of total world production does Saudi Arabia account for?
Which equation correctly represents the long-run demand for oil based on the elasticity provided?
Which equation correctly represents the long-run demand for oil based on the elasticity provided?
What does the total long-run supply formula indicate about the competitive supply?
What does the total long-run supply formula indicate about the competitive supply?
Which of the following statements is true regarding the price elasticity of competitive supply in the long run?
Which of the following statements is true regarding the price elasticity of competitive supply in the long run?
Which conclusion can be drawn about the demand curves based on the short-run and long-run elasticity?
Which conclusion can be drawn about the demand curves based on the short-run and long-run elasticity?
Study Notes
Income Elasticity of Demand
-
Measures how much the quantity demanded of a good changes in response to a change in consumer income
-
For luxuries, the income elasticity of demand is typically greater than 1
Price Elasticity of Supply
- In the short-run, supply is generally less elastic than in the long-run
- Durable goods tend to have a more elastic price elasticity of demand in the long-run than the short-run
- Non-durable goods tend to have a more elastic price elasticity of demand in the long-run than the short-run
Analyzing Income Elasticity of Demand
- Supply is not considered
Necessities and Income Elasticity of Demand
- Goods with an income elasticity of demand less than 1 are considered necessities
Durable and Non-Durable Goods
- Durable goods tend to have a more elastic income elasticity of demand than non-durable goods
Oil Prices
- The price of oil would likely rise sharply in the short-run if oil production ceased
- The long-run price of oil is projected to be higher than the short-run price
Supply and Demand Over Time
- Long-run supply and demand curves are generally more elastic than those in the short-run
Short-Run Supply
- An increase in oil prices would cause a larger total supply in the short run
Durable Goods vs Non-Durable Goods
- Durable goods are more affected by income changes
Short-Run Oil Demand
- The short-run demand for oil would be around 4.0 billion barrels at a price of $40 per barrel
Short-Run Supply at $25 per barrel
- At a price of $25 per barrel, the total supply would be $1.75 billion barrels.
Price/Consumption Forecasting
- Primary considerations include price elasticity of demand, price elasticity of supply and income elasticity of demand.
Long-Run Oil Demand Elasticity
- The long-run price elasticity of world demand for oil is -0.5
Short-Run Competitive Supply Price Elasticity
- The short-run price elasticity of competitive supply is 0.07P
Short-Run Total Supply Equation
- The short-run total supply equation is: 0.07P + 1.5
Long-Run Demand Equation
- The value of 'a' in the long-run demand equation is -0.5
Saudi Arabia's Oil Production
- Saudi Arabia accounts for approximately 12.2% of the total world production of oil
Long-Run Oil Demand Equation
- The long-run demand equation is: Qd = 6 - 0.5P
Long-Run Total Supply Formula
- The long-run total supply formula indicates that the competitive supply is perfectly inelastic.
Long-Run Competitive Supply Elasticity
- The long-run competitive supply price elasticity is infinite.
Short-Run vs Long-Run Oil Demand
- The short-run demand curve is less elastic than the long-run demand.
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Description
This quiz explores the concepts of income elasticity, short-run vs. long-run elasticities, and the impact of oil shocks on the global oil market. Additionally, it outlines the role of OPEC in controlling oil production and its effects on demand elasticity in both the short and long term.
