Elasticity of Demand and Supply in Economics
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Questions and Answers

What does elasticity measure in economics?

  • Static nature of a variable
  • Absolute value of a variable
  • Rate of change of a variable
  • Responsiveness of one variable to a change in another variable (correct)

    • How is price elasticity of demand defined?

  • Impact of demand shift on price
  • Measure of market demand fluctuations
  • Rate of supply change in response to a price change
  • Responsiveness of quantity demanded to a change in price (correct)

    • In economics, what is said to be the case when demand is inelastic?

  • Quantity demanded increases with price increase
  • Quantity demanded does not change much when price changes (correct)
  • Quantity demanded decreases significantly with price increase
  • Demand is highly variable with price changes

    • What does price elasticity of supply measure?

    <p>Responsiveness of quantity supplied to a price change</p> Signup and view all the answers

    When is supply said to be inelastic?

    <p>Quantity supplied does not change much when price changes</p> Signup and view all the answers

    What does cross-price elasticity of demand measure?

    <p>Responsiveness of quantity demanded of one good to a change in price of another good</p> Signup and view all the answers

    What happens to the price that businesses can charge when demand is inelastic?

    <p>They can charge higher prices without losing many customers.</p> Signup and view all the answers

    What is elasticity of demand a measure of?

    <p>The responsiveness of the quantity demanded to changes in price.</p> Signup and view all the answers

    Which type of goods tend to have inelastic demand?

    <p>Necessity goods</p> Signup and view all the answers

    What is a key determinant of the elasticity of demand?

    <p>The availability of substitutes</p> Signup and view all the answers

    What happens to the elasticity of demand when a good represents a small portion of consumers' income?

    <p>It becomes more inelastic</p> Signup and view all the answers

    Why do luxury goods often have elastic demand?

    <p>Because consumers can easily forgo them if the price rises</p> Signup and view all the answers

    Which factor primarily determines the ease of adjusting production levels in response to price changes?

    <p>Availability of inputs</p> Signup and view all the answers

    In which scenario is the supply likely to be more elastic?

    <p>In a competitive market with many producers</p> Signup and view all the answers

    How do government regulations impact the elasticity of supply?

    <p>By affecting production costs and incentives for producers</p> Signup and view all the answers

    How does technology influence the elasticity of supply?

    <p>By increasing the efficiency of production processes</p> Signup and view all the answers

    Which factor is NOT directly related to the elasticity of supply?

    <p>Consumer demand</p> Signup and view all the answers

    What type of market tends to have a more elastic supply?

    <p>Perfectly competitive market</p> Signup and view all the answers

    What factor can make demand less elastic in the short run?

    <p>The inability to adjust consumption patterns</p> Signup and view all the answers

    How can brand loyalty impact elasticity of demand?

    <p>Decreasing elasticity due to willingness to pay higher prices</p> Signup and view all the answers

    How does the definition of the market affect the elasticity of demand?

    <p>Demand is more elastic in broader markets as consumers have more options</p> Signup and view all the answers

    What role does the perceived value of a product play in its elasticity?

    <p>High perceived value decreases elasticity as consumers pay more for perceived benefits</p> Signup and view all the answers

    What makes the supply of a product less elastic in the short run?

    <p>Producers lack flexibility in adjusting production</p> Signup and view all the answers

    How does time horizon affect elasticity of supply?

    <p>Elasticity increases in the long run because of increased production flexibility</p> Signup and view all the answers

    How are two goods classified if the quantity demanded of one good increases when the price of another good increases?

    <p>Substitutes</p> Signup and view all the answers

    What does it mean if the quantity demanded of a good decreases when consumer income increases?

    <p>The good is inferior</p> Signup and view all the answers

    What is the significance of understanding elasticity for policymakers who seek to increase tax revenue by raising taxes on a product or service?

    <p>Understanding elasticity helps policymakers anticipate consumer response to increased taxes</p> Signup and view all the answers

    If demand is elastic, what should businesses do in order to avoid losing customers?

    <p>Decrease prices</p> Signup and view all the answers

    What does it mean when the quantity demanded of a good increases significantly when consumer income increases?

    <p>The good is a normal good</p> Signup and view all the answers

    What can businesses learn from understanding elasticity of demand for their products or services?

    <p>Elasticity of demand can inform pricing strategies</p> Signup and view all the answers

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