Questions and Answers
What term is used to measure the responsiveness of quantity demanded to a change in price?
When the price elasticity of demand is less than 1, what type of demand is being described?
Which of the following is an example of a good that typically has inelastic demand?
What does cross-price elasticity measure?
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How is demand elasticity relevant for policy-makers?
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What is the importance of measuring elasticity in health care demand?
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What does a relatively small change in quantity demanded in response to a price increase suggest about the demand for that good?
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Which statement accurately describes price elasticity of demand?
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Study Notes
Responsiveness of Demand
- Understanding demand responsiveness is essential for designing effective policies.
- Responsiveness is quantified as elasticity of demand, indicated by the shape and slope of the demand curve.
Types of Elasticity
- Price Elasticity of Demand: Measures how quantity demanded responds to price changes.
- Income Elasticity: Reflects how demand changes with variations in consumer income.
- Cross-Price Elasticity: Analyzes the demand response to price changes of related goods.
Importance of Demand Elasticity
- Helps policymakers predict the effects of price increases or decreases on quantity demanded.
- Elasticity is critical in sectors like healthcare, where demand is often evaluated by service usage or total costs.
Inelastic vs. Elastic Demand
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Inelastic Demand: Occurs when the percentage change in quantity demanded is less than the percentage change in price (elasticity < 1).
- Examples: Petrol and tobacco are typically inelastic due to necessity or lack of substitutes.
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Elastic Demand: Happens when the percentage change in quantity demanded exceeds the percentage change in price (elasticity > 1).
- Examples: Cereal and shampoo often have elastic demand; consumers significantly reduce consumption when prices rise.
- Certain cosmetic surgeries in healthcare demonstrate elastic demand due to their non-essential nature.
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Description
This quiz focuses on the concept of elasticity and its importance in understanding the responsiveness of demand to various variables, specifically price and income changes. Test your knowledge on how elasticity is measured and its implications in economic policies.
