Term 2 Test
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Term 2 Test

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Questions and Answers

What do relative prices represent in economics?

  • The total cost of a firm
  • The cost of producing one good or service
  • The total revenue of a firm
  • The price of one good or service in terms of another (correct)

    • What is the Law of Supply?

  • Higher prices decrease production and supply
  • Lower prices increase demand
  • Lower prices decrease demand
  • Higher prices encourage increased production and supply (correct)

    • What happens to demand when the price of a good increases?

  • Demand decreases unless the good is inelastic (correct)
  • Demand always increases
  • Demand always decreases
  • Demand increases if the good is inelastic

    • What are substitutes in economics?

    <p>Goods that can be used as alternatives</p> Signup and view all the answers

    What is the primary objective of most businesses?

    <p>Maximize profit</p> Signup and view all the answers

    What determines the profitability of a firm?

    <p>The relationship between cost and revenue</p> Signup and view all the answers

    What is the effect of an increase in the price of a good on its demand?

    <p>Demand always decreases</p> Signup and view all the answers

    What is the impact of a decrease in the price of a good on the demand of its complement?

    <p>Demand for the complement always increases</p> Signup and view all the answers

    What does price elasticity of demand measure?

    <p>How much the quantity demanded of a good responds to a change in the price of that good</p> Signup and view all the answers

    Which of the following is an example of an inferior good?

    <p>Generic brands</p> Signup and view all the answers

    What is the effect of a longer time period on the elasticity of demand?

    <p>Demand becomes more elastic</p> Signup and view all the answers

    What is cross elasticity of demand used to measure?

    <p>The responsiveness of quantity demanded to a change in the price of a related good</p> Signup and view all the answers

    Which of the following is an example of a complementary good?

    <p>Cars and fuel</p> Signup and view all the answers

    What is the effect of an increase in the availability of substitutes on the elasticity of demand?

    <p>Demand becomes more elastic</p> Signup and view all the answers

    What is the effect of an increase in production capacity on the elasticity of supply?

    <p>Supply becomes more elastic</p> Signup and view all the answers

    What is the term for a good whose demand is exactly proportional to a change in price?

    <p>Unit Elastic</p> Signup and view all the answers

    What is the term for a good whose demand is relatively insensitive to price changes?

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

    What is the purpose of understanding price elasticity of supply?

    <p>To plan production levels and set prices</p> Signup and view all the answers

    What type of profit calculation does not account for implicit costs?

    <p>Accounting Profit</p> Signup and view all the answers

    What is the cost of producing one additional unit of output?

    <p>Marginal Cost</p> Signup and view all the answers

    What occurs when increasing the scale of production leads to a lower cost per unit?

    <p>Economies of Scale</p> Signup and view all the answers

    What is the total income from sales calculated as?

    <p>Price x Quantity</p> Signup and view all the answers

    What is the profit calculated as?

    <p>TR - TC</p> Signup and view all the answers

    What type of profit represents the break-even point where a business makes just enough profit to continue operating?

    <p>Normal Profit</p> Signup and view all the answers

    What is the cost that does not vary with the level of output?

    <p>Fixed Cost</p> Signup and view all the answers

    What is the sum of fixed and variable costs?

    <p>Total Cost</p> Signup and view all the answers

    What refers to how output changes in response to a proportional increase in all inputs?

    <p>Returns to Scale</p> Signup and view all the answers

    What is the additional income from selling one more unit?

    <p>Marginal Revenue</p> Signup and view all the answers

    What is the primary role of understanding relationships between markets?

    <p>To analyze how changes in one market affect others</p> Signup and view all the answers

    What is the result of higher prices in a market with elastic demand?

    <p>Decreased demand and revenue</p> Signup and view all the answers

    What is the purpose of understanding relative prices?

    <p>To influence consumer and producer decisions</p> Signup and view all the answers

    What is the relationship between cost, revenue, and profitability?

    <p>The relationship between cost, revenue, and profitability is crucial for a firm's profitability</p> Signup and view all the answers

    What happens to the demand for a good when the price of its substitute increases?

    <p>Demand increases</p> Signup and view all the answers

    What is the objective of most businesses?

    <p>To maximize profit</p> Signup and view all the answers

    What is the result of a decrease in the price of a good on the demand of its complement?

    <p>Demand increases</p> Signup and view all the answers

    What is the focus of understanding dynamics of markets?

    <p>Both short-run and long-run perspectives</p> Signup and view all the answers

    What is the main difference between accounting profit and economic profit?

    <p>Economic profit considers opportunity costs, while accounting profit does not.</p> Signup and view all the answers

    What is the purpose of calculating marginal cost?

    <p>To make decisions about the level of output.</p> Signup and view all the answers

    What occurs when a firm experiences economies of scale?

    <p>The cost per unit decreases as production increases.</p> Signup and view all the answers

    What is the difference between fixed costs and variable costs?

    <p>Variable costs vary with the level of output, while fixed costs do not.</p> Signup and view all the answers

    What is the purpose of calculating total revenue?

    <p>To make decisions about pricing strategies.</p> Signup and view all the answers

    What is the main advantage of considering normal profit?

    <p>It ensures a firm's long-term sustainability.</p> Signup and view all the answers

    What is the relationship between marginal revenue and the optimal level of output?

    <p>Marginal revenue is equal to marginal cost at the optimal level of output.</p> Signup and view all the answers

    What happens to fixed costs in the long run?

    <p>They become variable costs.</p> Signup and view all the answers

    What is the purpose of understanding cost structures?

    <p>To make decisions about the level of output.</p> Signup and view all the answers

    What is the main difference between increasing returns to scale and decreasing returns to scale?

    <p>Increasing returns to scale occur when output increases by a greater proportion than inputs.</p> Signup and view all the answers

    What is the primary factor that determines the elasticity of demand for a necessity?

    <p>Necessity vs. luxury</p> Signup and view all the answers

    What is the effect of an increase in the proportion of income spent on a product on its elasticity of demand?

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

    What is the primary factor that determines the elasticity of supply for a firm with limited production capacity?

    <p>Production capacity</p> Signup and view all the answers

    What is the term for the responsiveness of quantity demanded to a change in the price of another good?

    <p>Cross elasticity of demand</p> Signup and view all the answers

    What is the term for a good whose demand is exactly proportional to a change in price?

    <p>Unit elastic</p> Signup and view all the answers

    What is the purpose of understanding price elasticity of demand?

    <p>To set prices that optimize revenue</p> Signup and view all the answers

    What is the effect of a longer time period on the elasticity of demand?

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

    What is the primary factor that determines the elasticity of demand for a luxury good?

    <p>Necessity vs. luxury</p> Signup and view all the answers

    What is the term for the responsiveness of quantity supplied to a change in price?

    <p>Price elasticity of supply</p> Signup and view all the answers

    What is the purpose of understanding price elasticity of supply?

    <p>To plan production levels</p> Signup and view all the answers

    Which of the following goods tend to have inelastic demand?

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

    What is the effect of a longer time period on the elasticity of supply?

    <p>It makes supply more elastic</p> Signup and view all the answers

    What is the purpose of understanding cross elasticity of demand?

    <p>To analyze the interdependencies between different products</p> Signup and view all the answers

    What is the term for a good whose demand is exactly proportional to a change in price?

    <p>Unit elastic good</p> Signup and view all the answers

    What is the effect of an increase in the availability of substitutes on the elasticity of demand?

    <p>It makes demand more elastic</p> Signup and view all the answers

    What is the primary goal of understanding price elasticity of demand for businesses?

    <p>To set prices that optimize revenue</p> Signup and view all the answers

    What is the effect of an increase in production capacity on the elasticity of supply?

    <p>It makes supply more elastic</p> Signup and view all the answers

    What is the purpose of understanding price elasticity of supply for firms?

    <p>To plan production levels</p> Signup and view all the answers

    What is the term for a good whose demand is relatively insensitive to price changes?

    <p>Inelastic good</p> Signup and view all the answers

    What is the primary application of understanding price elasticity of demand and supply for policymakers?

    <p>Formulating policy</p> Signup and view all the answers

    What is the main difference between accounting profit and economic profit?

    <p>Economic profit accounts for implicit costs, while accounting profit does not</p> Signup and view all the answers

    What is the purpose of understanding cost structures?

    <p>To understand how costs change with different levels of output</p> Signup and view all the answers

    What occurs when a firm experiences economies of scale?

    <p>The cost per unit of output decreases</p> Signup and view all the answers

    What is the term for the cost of producing one additional unit of output?

    <p>Marginal cost</p> Signup and view all the answers

    What represents the break-even point where a business makes just enough profit to continue operating?

    <p>Normal profit</p> Signup and view all the answers

    What is the purpose of calculating marginal revenue?

    <p>To determine the optimal level of output for a firm</p> Signup and view all the answers

    What happens to fixed costs in the long run?

    <p>They become variable</p> Signup and view all the answers

    What is the relationship between marginal revenue and the optimal level of output?

    <p>Marginal revenue is equal to marginal cost at the optimal level of output</p> Signup and view all the answers

    What is the term for how output changes in response to a proportional increase in all inputs?

    <p>Returns to scale</p> Signup and view all the answers

    What is the purpose of understanding the dynamics of cost, revenue, and profitability?

    <p>To maximize profits and make informed business decisions</p> Signup and view all the answers

    What is the primary role of understanding relationships between markets?

    <p>To understand how changes in one market affect others</p> Signup and view all the answers

    Which of the following factors influences demand?

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

    What happens to the demand for a good when the price of its substitute decreases?

    <p>Demand increases</p> Signup and view all the answers

    What is the primary objective of most businesses?

    <p>Profit maximization</p> Signup and view all the answers

    What is the effect of an increase in the price of a good on its demand, assuming the good is elastic?

    <p>Demand decreases</p> Signup and view all the answers

    What is the relationship between cost, revenue, and profitability?

    <p>Profitability is the difference between revenue and cost</p> Signup and view all the answers

    What is the effect of a decrease in the price of a good on the demand of its complement?

    <p>Demand increases</p> Signup and view all the answers

    What do relative prices represent in economics?

    <p>The cost of one good or service in terms of another</p> Signup and view all the answers

    What is the primary role of understanding relationships between markets?

    <p>To understand how changes in one market affect others</p> Signup and view all the answers

    What is the result of an increase in the price of a good on its demand, assuming the good is elastic?

    <p>A decrease in demand</p> Signup and view all the answers

    What is the focus of understanding dynamics of markets?

    <p>To understand how markets allocate resources in an economy</p> Signup and view all the answers

    What is the result of a decrease in the price of a good on the demand of its complement?

    <p>An increase in demand for the complement</p> Signup and view all the answers

    What is the relationship between cost, revenue, and profitability in a firm?

    <p>Cost and revenue are directly related, and profitability is the difference between the two</p> Signup and view all the answers

    What happens to the demand for a good when the price of its substitute increases?

    <p>The demand for the good increases</p> Signup and view all the answers

    Why are relative prices fundamental in economics?

    <p>Because they influence consumer and producer decisions about what to buy or produce</p> Signup and view all the answers

    What is the primary objective of most businesses?

    <p>To maximize profit</p> Signup and view all the answers

    What is the main difference between accounting profit and economic profit?

    <p>Economic profit accounts for opportunity costs, while accounting profit does not.</p> Signup and view all the answers

    What is the purpose of calculating marginal cost?

    <p>To make decisions about the optimal level of production.</p> Signup and view all the answers

    What occurs when a firm experiences economies of scale?

    <p>The cost per unit of output decreases.</p> Signup and view all the answers

    What is the purpose of calculating total revenue?

    <p>To understand how revenue changes in response to changes in price or quantity.</p> Signup and view all the answers

    What is the main advantage of considering normal profit?

    <p>It represents the minimum profit needed for sustainability.</p> Signup and view all the answers

    What is the relationship between marginal revenue and the optimal level of output?

    <p>The optimal level of output is where marginal revenue equals marginal cost.</p> Signup and view all the answers

    What happens to fixed costs in the long run?

    <p>They become variable costs.</p> Signup and view all the answers

    What is the primary role of understanding cost structures?

    <p>To guide long-term strategic planning and capacity decisions.</p> Signup and view all the answers

    What is the main difference between increasing returns to scale and decreasing returns to scale?

    <p>The rate of the change in output.</p> Signup and view all the answers

    What is the purpose of understanding revenue changes?

    <p>To understand how revenue changes in response to changes in price or quantity.</p> Signup and view all the answers

    Which of the following is a characteristic of a good with elastic demand?

    <p>A small price change causes a significant change in quantity demanded.</p> Signup and view all the answers

    What is the primary factor that determines the elasticity of supply for a firm with unlimited production capacity?

    <p>The availability of production resources.</p> Signup and view all the answers

    What is the effect of an increase in the price of a complementary good on the demand of another good?

    <p>The demand for the other good will decrease.</p> Signup and view all the answers

    Which of the following is an example of a normal good?

    <p>Quality clothing.</p> Signup and view all the answers

    What is the purpose of understanding price elasticity of demand?

    <p>To set prices that optimize revenue.</p> Signup and view all the answers

    Which of the following is a characteristic of a good with unit elastic demand?

    <p>The percentage change in quantity demanded is equal to the percentage change in price.</p> Signup and view all the answers

    What is the effect of an increase in the availability of substitutes on the elasticity of demand?

    <p>The elasticity of demand will increase.</p> Signup and view all the answers

    What is the primary factor that determines the elasticity of demand for a luxury good?

    <p>The proportion of income spent on the product.</p> Signup and view all the answers

    What is the purpose of understanding cross elasticity of demand?

    <p>To understand the interdependencies between different products.</p> Signup and view all the answers

    What is the effect of an increase in the time period to respond to price changes on the elasticity of demand?

    <p>The elasticity of demand will increase.</p> Signup and view all the answers

    Why are relative prices crucial in economics?

    <p>They influence consumer and producer decisions about what to buy or produce</p> Signup and view all the answers

    What happens when the price of a good increases?

    <p>Demand for the good may decrease, unless the good is inelastic</p> Signup and view all the answers

    What is the primary objective of most businesses in the economic framework?

    <p>Profit maximization</p> Signup and view all the answers

    What affects the demand for a good when the price of its complement decreases?

    <p>The demand for the good may increase, as the complement is used together with it</p> Signup and view all the answers

    What is the focus of understanding dynamics of markets?

    <p>Analyzing how changes in one market affect others</p> Signup and view all the answers

    What happens when the price of a substitute good increases?

    <p>Demand for the original good may increase, as the substitute is now more expensive</p> Signup and view all the answers

    What happens to the elasticity of demand when there are more substitutes available?

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

    What does income elasticity of demand measure?

    <p>How quantity demanded responds to changes in income</p> Signup and view all the answers

    Why are relationships between markets crucial in determining economic dynamics?

    <p>They influence consumer and producer decisions about what to buy or produce</p> Signup and view all the answers

    What is the purpose of understanding price elasticity of supply?

    <p>To plan production levels</p> Signup and view all the answers

    What is the relationship between cost, revenue, and profitability in the economic framework of businesses?

    <p>Cost and revenue determine profitability</p> Signup and view all the answers

    What is an example of a normal good?

    <p>Quality clothing</p> Signup and view all the answers

    What happens to the demand for a good when the price of its complement increases?

    <p>Demand decreases</p> Signup and view all the answers

    What is the effect of an increase in production capacity on the elasticity of supply?

    <p>Supply becomes more elastic</p> Signup and view all the answers

    What is the primary purpose of distinguishing between accounting profit and economic profit?

    <p>To understand the true profitability of a firm</p> Signup and view all the answers

    What is the term for the responsiveness of quantity supplied to a change in price?

    <p>Price elasticity of supply</p> Signup and view all the answers

    What is the relationship between fixed costs and the level of output?

    <p>Fixed costs remain constant regardless of output</p> Signup and view all the answers

    What is the effect of a longer time period on the elasticity of demand?

    <p>Demand becomes more elastic</p> Signup and view all the answers

    What occurs when a firm experiences increasing returns to scale?

    <p>Output increases by a greater proportion than inputs</p> Signup and view all the answers

    What is cross elasticity of demand used to measure?

    <p>The responsiveness of quantity demanded to a change in another good's price</p> Signup and view all the answers

    What is the purpose of calculating marginal cost?

    <p>To determine the optimal level of output</p> Signup and view all the answers

    What is the primary benefit of understanding price elasticity of demand for businesses?

    <p>To set prices that maximize revenue</p> Signup and view all the answers

    What is the relationship between marginal revenue and the optimal level of output?

    <p>Marginal revenue determines the optimal level of output</p> Signup and view all the answers

    What is the purpose of understanding cost structures?

    <p>To determine the most efficient production levels</p> Signup and view all the answers

    What type of profit represents the break-even point where a business makes just enough profit to continue operating?

    <p>Normal profit</p> Signup and view all the answers

    What is the primary factor that determines the elasticity of demand for a necessity?

    <p>The proportion of income spent on the product</p> Signup and view all the answers

    What is the effect of an increase in the scale of production on the cost per unit, under economies of scale?

    <p>The cost per unit decreases</p> Signup and view all the answers

    What is the purpose of understanding the dynamics of cost, revenue, and profitability?

    <p>To understand market behavior and guide business decisions</p> Signup and view all the answers

    What is the primary difference between accounting profit and economic profit?

    <p>Accounting profit is calculated based on explicit costs, while economic profit is calculated based on opportunity costs.</p> Signup and view all the answers

    What occurs when a firm experiences constant returns to scale?

    <p>Output increases proportionally to inputs.</p> Signup and view all the answers

    What is the purpose of calculating marginal cost?

    <p>To determine the optimal level of output.</p> Signup and view all the answers

    What is the focus of understanding dynamics of markets?

    <p>Understanding the interactions between markets and the resulting outcomes.</p> Signup and view all the answers

    What is the primary role of understanding relationships between markets?

    <p>To understand how changes in one market affect other markets.</p> Signup and view all the answers

    What is the main advantage of considering normal profit?

    <p>It provides a minimum profit level for sustainability.</p> Signup and view all the answers

    What is the relationship between marginal revenue and the optimal level of output?

    <p>Marginal revenue is used to determine the optimal level of output.</p> Signup and view all the answers

    What happens to fixed costs in the long run?

    <p>They become variable costs.</p> Signup and view all the answers

    What is the main difference between increasing returns to scale and decreasing returns to scale?

    <p>One occurs when output increases by a greater proportion than inputs, while the other occurs when output increases by a smaller proportion than inputs.</p> Signup and view all the answers

    What is the purpose of understanding cost structures?

    <p>To understand how costs change in response to changes in output.</p> Signup and view all the answers

    Which of the following factors does not directly influence relative prices?

    <p>Technological advancements</p> Signup and view all the answers

    What is the primary consequence of a decrease in the price of a good on its complement?

    <p>An increase in the demand for the good</p> Signup and view all the answers

    What is the primary objective of a firm in the long run?

    <p>Maximizing profit</p> Signup and view all the answers

    What is the result of an increase in the price of a good in a market with inelastic demand?

    <p>A decrease in the quantity demanded</p> Signup and view all the answers

    What is the primary factor that determines the relationship between cost, revenue, and profitability in a firm?

    <p>Supply and demand conditions</p> Signup and view all the answers

    What is the consequence of a decrease in the price of a good on its substitute?

    <p>A decrease in the demand for the good</p> Signup and view all the answers

    What is the primary role of understanding dynamics of markets?

    <p>To understand how changes in one market affect others</p> Signup and view all the answers

    What is the primary factor that determines the elasticity of demand for a luxury good?

    <p>Necessity vs. Luxury</p> Signup and view all the answers

    What is the result of an increase in the production capacity of a firm on its elasticity of supply?

    <p>An increase in the elasticity of supply</p> Signup and view all the answers

    A company finds that the demand for its product is more elastic in the long run. What is the most likely explanation?

    <p>Consumers have more time to adjust their behavior</p> Signup and view all the answers

    Which of the following statements is true about the price elasticity of supply?

    <p>It is affected by the availability of production resources</p> Signup and view all the answers

    A company finds that the cross elasticity of demand between its product and a related product is positive. What can be inferred?

    <p>The products are substitute goods</p> Signup and view all the answers

    What is the primary benefit of understanding the income elasticity of demand?

    <p>To predict the response to a change in consumer income</p> Signup and view all the answers

    A company is considering increasing the price of its product, but is unsure of the effect on demand. What type of elasticity should it consider?

    <p>Price elasticity of demand</p> Signup and view all the answers

    What is the effect of an increase in the availability of production resources on the elasticity of supply?

    <p>It makes supply more elastic</p> Signup and view all the answers

    Which of the following is an example of a normal good?

    <p>Quality clothing</p> Signup and view all the answers

    What is the primary benefit of understanding the price elasticity of supply?

    <p>To plan production levels and optimize revenue</p> Signup and view all the answers

    A company finds that the demand for its product is more elastic when the product is a larger proportion of the consumer's income. What is the most likely explanation?

    <p>The product consumes a larger portion of the consumer's income</p> Signup and view all the answers

    What is the primary distinction between accounting profit and economic profit?

    <p>Accounting profit ignores implicit costs, while economic profit accounts for them</p> Signup and view all the answers

    What is the purpose of calculating marginal cost?

    <p>To determine the optimal level of output</p> Signup and view all the answers

    What occurs when a firm experiences decreasing returns to scale?

    <p>Output increases at a proportionally smaller rate than inputs</p> Signup and view all the answers

    What is the relationship between marginal revenue and the optimal level of output?

    <p>Marginal revenue is equal to the optimal level of output</p> Signup and view all the answers

    What is the primary advantage of considering normal profit?

    <p>It represents the minimum profit needed for sustainability</p> Signup and view all the answers

    What happens to fixed costs in the long run?

    <p>They become variable</p> Signup and view all the answers

    What is the purpose of understanding cost structures?

    <p>To identify the most efficient production levels</p> Signup and view all the answers

    What is the main difference between increasing returns to scale and decreasing returns to scale?

    <p>One occurs when output increases by a greater proportion than inputs, while the other occurs when output increases by a smaller proportion than inputs</p> Signup and view all the answers

    What is the purpose of understanding revenue calculations?

    <p>To understand the interaction between revenue and costs</p> Signup and view all the answers

    What is the relationship between cost, revenue, and profitability?

    <p>Cost and revenue are directly related, while profitability is the difference between the two</p> Signup and view all the answers

    Which of the following is a consequence of a shift in relative prices in an economy?

    <p>A reallocation of resources towards the production of goods with higher relative prices</p> Signup and view all the answers

    What is the primary impact of a decrease in the price of a good on its demand, assuming the good is not a Giffen good?

    <p>An increase in the demand for the good, ceteris paribus</p> Signup and view all the answers

    Which of the following is a characteristic of a firm's cost structure in the long run?

    <p>All costs are variable</p> Signup and view all the answers

    What is the primary objective of a firm's profit maximization strategy?

    <p>To maximize revenue</p> Signup and view all the answers

    What is the relationship between the demand for a good and its substitutes?

    <p>A decrease in the demand for a good leads to an increase in the demand for its substitutes</p> Signup and view all the answers

    What is the purpose of understanding the relationships between different markets?

    <p>To understand the impact of changes in one market on other markets</p> Signup and view all the answers

    What is the impact of a decrease in the price of a good on the demand for its complements?

    <p>An increase in the demand for its complements</p> Signup and view all the answers

    What is the primary role of revenue in the determination of a firm's profitability?

    <p>To determine the firm's total profit</p> Signup and view all the answers

    What is the primary reason why the demand for luxury goods is more elastic than the demand for necessity goods?

    <p>Necessity goods are essential for daily life</p> Signup and view all the answers

    What is the effect of an increase in the time period on the elasticity of supply?

    <p>Supply becomes more elastic</p> Signup and view all the answers

    What is the primary reason why the cross elasticity of demand for complementary goods is negative?

    <p>An increase in the price of one good leads to a decrease in the demand for the other good</p> Signup and view all the answers

    What is the effect of an increase in the availability of substitutes on the elasticity of demand?

    <p>Demand becomes more elastic</p> Signup and view all the answers

    What is the primary factor that determines the elasticity of demand for a product that consumes a large proportion of the consumer's income?

    <p>Proportion of income</p> Signup and view all the answers

    What is the primary reason why the elasticity of supply is more elastic in the long run than in the short run?

    <p>Firms have more time to adjust their production levels</p> Signup and view all the answers

    What is the effect of an increase in the price of a good on its demand if the elasticity of demand is unit elastic?

    <p>Demand decreases by the same percentage as the price increase</p> Signup and view all the answers

    What is the primary reason why the income elasticity of demand for inferior goods is negative?

    <p>An increase in income leads to a decrease in demand for the good</p> Signup and view all the answers

    What is the effect of an increase in the production capacity on the elasticity of supply?

    <p>Supply becomes more elastic</p> Signup and view all the answers

    What is the primary reason why understanding the price elasticity of demand is important for businesses?

    <p>To determine the optimal price that maximizes revenue</p> Signup and view all the answers

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