Microeconomics Elasticity Concepts

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Questions and Answers

Why do economists prefer using percentages for calculating elasticity?

Percentages are absolute values that can be easily understood.

Elasticity should be measured in compatible units, and percentages are unit-less. (correct)

Percentages make it easier to compare different units of measurement.

Percentages allow for quicker calculations without the need for a formula.

How does the direction of price change affect the calculated elasticity?

An increase in price will always yield a positive elasticity value.

The algebraic formula for elasticity only accounts for price increases.

Elasticity remains the same regardless of direction due to the properties of ratios.

Elasticity can differ based on whether the price increase or decrease is measured first. (correct)

What was the calculated elasticity of demand for petrol when using the average changes?

0.75, indicating inelastic demand

0.89, indicating inelastic demand (correct)

1.06, indicating elastic demand

0.50, indicating unitary elastic demand

What is the primary consequence of calculating elasticity without adjusting for average changes?

You risk obtaining misleading values that vary significantly. Signup and view all the answers

When measuring the elasticity of demand as price decreases from $1.20 to $1.00, what is the original quantity demanded?

85 L Signup and view all the answers

What common perception do students have towards economics subjects?

Economics is seen as hard, mathematical, and boring. Signup and view all the answers

What approach does the book advocate for teaching economics effectively?

Explain economic principles through everyday activities. Signup and view all the answers

Why have economics class sizes reportedly been shrinking at universities?

The subject is often adjusted to appease students rather than properly educate. Signup and view all the answers

What teaching philosophy has been consistent across the author's global teaching experience?

Incorporate humor and respect for diverse learning styles. Signup and view all the answers

What is one of the primary goals of the book regarding the teaching of microeconomics?

To clarify and simplify important principles of microeconomics. Signup and view all the answers

How does the author view the use of complicated economic laws in daily life?

They are often utilized unconsciously in everyday activities. Signup and view all the answers

What impact does the author suggest the current teaching methods have on students' perceptions of economics?

They contribute to negative associations with the subject. Signup and view all the answers

What does the Law of Supply indicate about the relationship between price and quantity supplied?

There is a direct relationship between price and quantity supplied. Signup and view all the answers

At a price of $4, what is the quantity of product that the supplier is willing to provide?

4 units Signup and view all the answers

When the price rises from $5 to $6, how does the quantity supplied change?

It increases by 1 unit. Signup and view all the answers

What is illustrated by the movement along the supply curve when price changes?

Changes in the quantity supplied in response to price changes. Signup and view all the answers

What happens to the willingness to supply as prices decrease according to the supply curve?

Willingness to supply decreases. Signup and view all the answers

Which aspect of supplier behavior is determined by the points on the supply curve?

The number of products suppliers are willing to supply at given prices. Signup and view all the answers

How many units are supplied at a price of $2 according to the supply schedule?

2 units Signup and view all the answers

If the supply curve is upward sloping, what characteristic of the supplier does this reflect?

Suppliers are more willing to supply more at higher prices. Signup and view all the answers

What factor is represented on the x-axis when plotting the supply curve?

Quantity supplied Signup and view all the answers

What does the production possibility frontier (PPF) curve illustrate?

The feasible combinations of two products that can be produced with limited resources. Signup and view all the answers

What must a government consider when allocating its limited resources?

Which projects to fund, such as infrastructure or public goods. Signup and view all the answers

Which statement best describes opportunity costs?

They are the benefits foregone from the next best alternative. Signup and view all the answers

How does the PPF curve change when opportunity costs are increasing?

It bows outward from the origin. Signup and view all the answers

What implication does the concept of scarcity have on consumer choices?

Consumers must make choices about product acquisition and sacrifices. Signup and view all the answers

In the context of a firm deciding on product combinations, what would be an example of a trade-off?

Choosing to produce more of one product while reducing the output of another. Signup and view all the answers

Why do firms and governments also encounter scarcity?

They must manage the same limited resources as consumers do. Signup and view all the answers

What might the shape of a PPF curve indicate about the nature of opportunity costs?

Opportunity costs are increasing as production shifts from one good to another. Signup and view all the answers

What is a crucial consequence of limited resources for economic agents?

The necessity of making choices everywhere economic agents operate. Signup and view all the answers

What does it indicate if the price elasticity of demand is less than one?

The demand is inelastic. Signup and view all the answers

At which point on the demand curve does unit elasticity occur?

$20 Signup and view all the answers

What is the expected effect on quantity demanded if the price increases from $5 to $10, based on the elasticity findings?

Quantity demanded will decrease but remain inelastic. Signup and view all the answers

What feature of the demand curve illustrates varying elasticities?

The linearity of the curve. Signup and view all the answers

If the price increases from $30 to $35 and quantity demanded decreases from 10 to 5, what can be inferred about the demand?

Demand is elastic. Signup and view all the answers

Which scenario would represent perfectly elastic demand?

A product that has many substitutes. Signup and view all the answers

What does a price elasticity of demand greater than one indicate?

The demand is elastic. Signup and view all the answers

How is the price elasticity of demand calculated?

By finding the ratio of percentage changes in quantity demanded to price. Signup and view all the answers

Which of the following statements is true about inelastic demand?

Quantity demanded changes proportionately less than the price change. Signup and view all the answers

What characteristic allows demand to be perfectly inelastic?

Necessity of the good regardless of price changes. Signup and view all the answers

Study Notes

Simplified Principles of Microeconomics

The book is a simplified guide to microeconomics, aimed at students.
The author, Hazbo Skoko, has decades of international teaching experience.
The book is divided into three parts: Part 1, Part 2, and Part 3.
Part 1 lays the foundation for the book, introducing visual vocabulary for the subject.
Part 2 focuses on the core principles of microeconomics (five principles).
Part 3 provides a summary and reference materials (bibliography, answers to exercises, glossary).

Introduction

Economic subjects are often perceived as hard, mathematical, and boring.
The book aims to use everyday activities to illustrate economic theory.
A teaching approach is used which emphasizes simplicity, honesty, humour, and respect for student learning styles.
The author has taught extensively worldwide, and developed a teaching style based on these principles.
A teaching example involved providing a lecture without direct instruction to promote independent thinking about creativity.

Part 1: The Structure of the Book

The book is divided into three parts.
Part 1 introduces basic concepts utilizing graphs.
Part 2 delves into core microeconomic principles.
Part 3 contains a summary, bibliography of key texts, exercises, and a glossary of economic terms.

Part 2: The First Principle: We Can't Have Everything We Want

The basic economic principle that resources are limited and choices must be made.
The concept of opportunity cost: the cost of the next best alternative given up when a decision is made.
Opportunity costs are not always monetary but can also be measured in other values, eg: time, satisfaction.
Examples of opportunity costs: choosing an iPhone over another phone, spending time studying instead of relaxing.
This principle is illustrated through graphs and everyday examples.

Part 2: The Second Principle: Desire Versus Availability

Economics of demand and supply.
Understanding the behavior of consumers.
The principle states that consumers demand more of a product as its price goes down and less as the price goes up. The inverse relationship is demonstrated with graphs.
Identifying the difference between changes in demand and in quantity demanded.
Identifying the difference between changes in supply and in quantity supplied.
Non-price factors that influence demand/supply to illustrate how this shifts the demand and supply curves.
Examples of shifts, such as changes in customer behaviour, consumer preferences, and income.
Demonstrating the demand & supply curve for a good.
Illustrating how a change in price can cause a movement along the demand or supply curve.

Part 2: The Third Principle: Measuring Responses

Elasticity of demand: measures the responsiveness of quantity demanded to changes in price.
Elasticity of supply: measures the responsiveness of quantity supplied to changes in price.
Elasticity of income: measures the responsiveness of quantity demanded to changes in income.
Demand sensitivity to price changes, illustrated through examples of petrol and gum to show the percentage responsiveness of the quantity demanded.
The differences between elastic, inelastic, and unit elastic demand are explained.

Part 2: The Fourth Principle: Negotiations

Markets as places where suppliers and customers interact to reach mutual agreement on price and quantity.
A competitive market is one where buyers and sellers negotiate without coercion.
Suppliers seek highest price while customers seek lowest price.
Equilibrium point: The point where demand and supply curves intersect.

Part 2: Different Market Structures

Perfect competition: Many small firms selling homogeneous products with free entry and exit and easy access to information.
Imperfect competition (monopoly): a single seller with obstacles to entry (e.g., patents, high start-up costs), offering unique products or with limited information.
Examples of imperfect competition: monopolies and oligopolies.

Part 2: The Fifth Principle: Costs

Production Factors: land, labor, capital and entrepreneur ship.
Illustrating the cost curves on a graph, providing examples of fixed cost, variable cost, total cost, average fixed cost, average variable cost, average total cost, and marginal cost.
Considering marginal costs and marginal revenue.
Discussing the link between production and costs.

Part 3: Instead of a Conclusion

The book challenges conventional teaching styles of economics.
It emphasizes how economic concepts relate to everyday actions.
The importance of understanding and applying economic principles in various aspects of life.

Part 3: About the Author

Hazbo Skoko's credentials and background, highlighting their extensive experience internationally.
Broad scope of research areas (IT management, international business, economics, quantum physics).

Part 3: Bibliography

Lists of crucial sources and recommended texts for further study.

Part 3: Selected Answers

Answers to the exercises and questions in the text, allowing for self-assessment.

Part 3: Glossary

Defines important microeconomic terms, aiding understanding.

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Description

Test your understanding of elasticity in microeconomics with this quiz that covers key principles and calculations. Explore questions on how economists use percentages, the impact of price changes, and effective teaching strategies in economics. Perfect for students seeking to deepen their knowledge of demand elasticity.