Market Pricing and Economic Decisions Quiz
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Questions and Answers

What happens when the price of a commodity increases due to high demand?

  • Surplus of products occurs.
  • Consumers increase their demand. (correct)
  • Producers decrease their supply.
  • The equilibrium price is established.

Which of the following correctly describes a price floor?

  • Set below the equilibrium price.
  • Used to increase profits of consumers.
  • Enacted to encourage higher demand.
  • Typically leads to a surplus. (correct)

What effect does a price ceiling generally have on the market?

  • Increases the quantity supplied.
  • Results in a surplus of goods.
  • Encourages suppliers to produce more.
  • Leads to a shortage of goods. (correct)

When a government sets a price floor, what is the most likely response from sellers?

<p>They increase their supply of goods. (C)</p> Signup and view all the answers

In what scenario is a price ceiling most likely to be beneficial?

<p>During a natural disaster affecting supply. (A)</p> Signup and view all the answers

What is the relationship between market prices and consumer satisfaction?

<p>Prices indicate how well consumers can satisfy their needs. (A)</p> Signup and view all the answers

What is a likely consequence of a surplus in the market?

<p>Encouragement for suppliers to limit production. (D)</p> Signup and view all the answers

How does a government intervention through price floors impact farmer incomes after a disaster?

<p>It provides a safety net for farmers by ensuring higher sale prices. (B)</p> Signup and view all the answers

What is the effect of a surplus on market prices?

<p>It decreases prices. (A)</p> Signup and view all the answers

Which of the following describes elastic demand?

<p>A small change in determinant leads to a large change in quantity demanded. (C)</p> Signup and view all the answers

What characterizes inelastic demand?

<p>The quantity demanded changes minimally with price changes. (D)</p> Signup and view all the answers

If the price of a product increases by 12% and the quantity demanded decreases by 6%, what is the elasticity coefficient?

<p>0.5 (A)</p> Signup and view all the answers

Which of the following correctly describes unitary elastic demand?

<p>The percentage change in quantity demanded equals the percentage change in price. (B)</p> Signup and view all the answers

In which scenario is demand considered elastic?

<p>A price change leads to a larger percentage change in quantity demanded. (D)</p> Signup and view all the answers

What does it mean for a market to be in disequilibrium?

<p>Prices have not yet adjusted to equilibrium levels. (B)</p> Signup and view all the answers

Which of the following statements is true regarding the calculation of elasticity?

<p>Elasticity is the percentage change in quantity divided by the percentage change in price. (C)</p> Signup and view all the answers

Flashcards

Market Price

The price of a commodity, reflecting its cost to producers and value to consumers; it's an indicator of scarcity.

Price Floor

Government-set minimum price for a product, greater than the equilibrium price.

Price Floor Effect (Surplus)

When a price floor is set higher than the equilibrium, it leads to a surplus of the product because supply exceeds demand.

Price Ceiling

Government-set maximum price for a product, lower than the equilibrium price.

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Price Ceiling Effect (Shortage)

When a price ceiling is set lower than equilibrium, it results in a shortage as demand exceeds supply.

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Equilibrium Price

The price at which the quantity demanded equals the quantity supplied.

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Market Disequilibrium

A situation where the market price and quantity aren't at equilibrium, leading to shortages or surpluses.

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Price as a Scarcity Indicator

Prices increase when a commodity is scarce and decrease when it's abundant.

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Disequilibrium

A market state where the quantity demanded and quantity supplied are not equal, causing either shortages or surpluses, and leading to price adjustments.

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Elasticity of Demand

The sensitivity of the quantity demanded for a good or service to changes in its determinants, such as price or income.

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Elastic Demand

Demand that changes significantly in response to changes in its determinants (e.g., a 10% price increase leads to a greater than 10% decrease in quantity demanded).

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Inelastic Demand

Demand that changes very little in response to changes in its determinants (e.g., a 10% price increase leads to less than a 10% decrease in quantity demanded).

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Unitary Elastic Demand

Demand that changes proportionally to changes in its determinants (e.g., a 10% price increase leads to a 10% decrease in quantity demanded).

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Elasticity of Supply

The sensitivity of the quantity supplied for a good or service to changes in its determinants, such as price or input costs.

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Coefficient of Elasticity

A numerical value that measures the degree of elasticity, calculated as the percentage change in quantity demanded or supplied divided by the percentage change in its determinant.

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Study Notes

Market Pricing and Economic Decisions

  • A market is a venue where goods are bought and sold.
  • Price reflects the cost to producers and the benefit to consumers.
  • Price impacts both buyers' decisions (how to fulfill needs) and sellers' decisions (how much to produce).
  • Price is influenced by scarcity. A need increases the price; abundance decreases it.

Price Controls

  • Price floor: Minimum price set by the government.

    • Above equilibrium, leading to surplus (supply > demand).
    • Example: Government sets minimum price for agricultural products after a typhoon to help farmers.

  • Price ceiling: Maximum price set by the government.

    • Below equilibrium, leading to shortage (demand > supply).
    • Example: Maximum price on a product discourages supply because profit margins are low.

  • Disequilibrium in price and quantity is resolved through changes in the market price.

  • Surpluses lead to downward pressure on price. Shortages increase pressure on price upward to equilibrium.

  • Market adjustment to equilibrium takes time (can be in disequilibrium).

Elasticities of Demand and Supply

  • Elasticity: Measures how demand/supply changes with shifts in determinants (price, income, etc.).
  • High elasticity: large percentage change in demand/supply for a small percentage change in determinant.
  • Low elasticity: small percentage change in demand/supply for a large percentage change in determinant.

Degrees of Elasticity

  • Elastic Demand/Supply: Large % change in quantity demanded/supplied for a small % change in a determinant.

    • Example: 10% increase in dress price leads to 12% decrease in demand.
    • The absolute value of the elasticity coefficient is greater than 1.

  • Inelastic Demand/Supply: Small % change in quantity demanded/supplied for a large % change in a determinant.

    • Example: 12% increase in rice price leads to 6% decrease in demand.
    • The absolute value of the elasticity coefficient is less than 1.

  • Unitary Elastic: % change in quantity demanded/supplied is equal to the % change in determinant.

    • Example: 5% increase in broccoli price leads to a 5% decrease in demand.

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Description

Test your knowledge on market pricing, price controls, and the impact of government regulations on supply and demand. This quiz covers concepts like price floors and price ceilings, providing examples and scenarios that illustrate economic decisions in marketplaces. Understand how scarcity and government intervention shape economic outcomes.

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