Questions and Answers
When the price of a good decreases, the substitution effect causes the quantity demanded to:
According to the law of demand, when the price of a good rises, the quantity demanded of the good:
Marginal utility refers to:
If the price elasticity of supply is greater than one, supply is considered:
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A subsidy granted to producers of a good is likely to:
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If the quantity demanded of a good decreases when its price falls, the good is classified as:
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Which statement about price elasticity of demand is true?
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Which of the following describes a good with inelastic supply?
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What happens to the demand for a substitute good if the price of the original good increases?
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Which of the following is NOT a determinant of demand?
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Study Notes
Comparative Advantage and Production
- Brazil can produce 15 tons of coffee or 10 tons of soybeans per day.
- Argentina can produce 10 tons of coffee or 20 tons of soybeans daily.
- Each country has a total of 5 days to produce goods.
- When each country specializes based on comparative advantage, total soybean output increases significantly.
Supply and Demand
- Increase in gasoline prices raises the demand for electric scooters.
- Decrease in lithium battery costs lowers the production cost for electric scooters.
- Entry of more firms into the electric scooter market increases supply.
- The equilibrium price may rise, while the effect on quantity is ambiguous due to simultaneous changes.
Elasticity
- Price elasticity of demand for milk is -0.3, indicating inelastic demand.
- A 15% increase in milk price results in a 4.5% decrease in quantity demanded, showing the sensitivity of demand inelasticity.
Consumer Choice
- A decrease in the price of good X will likely lead to increased purchases of X due to the substitution effect.
- Consumers tend to favor cheaper alternatives when prices change.
Market Structures
- Oligopolistic markets are characterized by firms having significant control over prices.
- Companies may sell similar or identical products and can earn long-run economic profits.
Production Possibilities Frontier
- An outward shift of a country's production possibilities frontier suggests an increase in productive capacity.
- Such growth can result from technological advancements or other positive economic changes.
Public Goods
- Public goods are defined by non-rivalry and non-excludability, meaning consumption by one does not reduce availability for others.
Externalities
- Emission of pollution by a factory exemplifies a negative externality, where costs are imposed on third parties outside the market transaction.
Taxes
- Imposing a tax on buyers shifts the demand curve left, indicating a decrease in demand at all price levels.
Price Ceilings
- A binding price ceiling is set below the equilibrium price, potentially leading to shortages in the market.
Opportunity Cost
- Opportunity cost represents the value of the next best alternative foregone when a choice is made.
Marginal Cost
- Marginal cost refers to the change in total cost that results from producing one additional unit of a good.
Perfect Competition
- In perfect competition, firms are price takers with no ability to control prices and produce identical products efficiently.
Price Floors
- A binding price floor is set above the equilibrium price, leading to surpluses in the market as supply exceeds demand.
Income Elasticity of Demand
- A good with positive income elasticity greater than one is classified as a luxury good, indicating high sensitivity to income changes.
Substitution Effect
- When the price of a good decreases, the quantity demanded increases for both normal and inferior goods due to the substitution effect.
Law of Demand
- The law of demand states that, all else being equal, when the price of a good rises, the quantity demanded decreases.
Marginal Utility
- Marginal utility measures the additional satisfaction obtained from consuming one more unit of a good or service.
Price Elasticity of Supply
- When price elasticity of supply is greater than one, supply is considered elastic, indicating responsiveness to price changes.
Government Intervention
- Providing subsidies to producers increases the supply of the good, lowering overall market prices and enhancing availability.
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Description
This quiz covers key concepts in microeconomics, including comparative advantage, supply and demand dynamics, elasticity, and consumer choice. Test your knowledge on the effects of price changes on demand and how specialization can influence production outputs. Perfect for students looking to reinforce their understanding of these foundational economic principles.
