29 Questions
What is a major difference between the short run and long run in terms of price elasticity of demand?
People can make some lifestyle changes in the short run, but more in the long run
What is the rule of thumb for determining price elasticity from a demand curve?
The flatter the curve, the bigger the elasticity
What type of demand curve has an elasticity of 0?
Perfectly Inelastic Demand
What is an example of a product with perfectly inelastic demand?
Salt
What is the main reason for the difference in price elasticity between the short run and long run?
The ability to make lifestyle changes
What is the characteristic of inelastic demand?
Percentage change in quantity demanded is less than the percentage change in price
What type of demand is characterized by a horizontal demand curve?
Perfectly elastic demand
What is the value of elasticity in a situation where the percentage change in quantity demanded is equal to the percentage change in price?
1
What happens to revenue when there is a price increase in a situation of elastic demand?
Revenue decreases
What is the shape of the demand curve in a situation of inelastic demand?
Steep
What is the characteristic of a linear demand curve?
The slope is constant, but elasticity is not
What is the main determinant of which effect is bigger when the price of a product is increased?
The price elasticity of demand
What happens to the revenue when the price of a product is increased and demand is elastic?
Revenue falls
What is the value of the price elasticity of demand when the percentage change in quantity demanded is greater than the percentage change in price?
Greater than 1
What happens to the revenue when the price of a product is increased and demand is inelastic?
Revenue rises
What is the relationship between the percentage change in quantity demanded and the percentage change in price when demand is inelastic?
The percentage change in quantity demanded is less than the percentage change in price
What is the formula for calculating revenue?
Revenue = P x Q
Why is the price elasticity of supply often greater in the long run than in the short run?
Because firms can build new factories or new firms may enter the market.
What is the elasticity of demand for illegal drugs due to?
The addictive nature of drugs.
What is the result of interdiction policy on drug-related crime?
An increase in total spending on drugs and drug-related crime.
What is the effect of education policy on the demand for drugs?
It reduces the demand for drugs.
What happens to total expenditure on insulin if pharmacies raise the price by 10% and demand is inelastic?
It rises
What is the relationship between the total dollar value of drug-related crime and total expenditure on drugs?
The total dollar value of drug-related crime is equal to total expenditure on drugs.
What is the result of education policy on drug-related crime?
A decrease in drug-related crime.
What happens to the total revenue of luxury cruise companies if the price of a luxury cruise falls by 20% and demand is elastic?
It rises
What is the income elasticity of demand for a normal good?
Greater than 0
What happens to demand for a normal good when consumer income increases?
It increases
What determines the direction of the change in expenditure when the price of a good increases?
Both the price elasticity of demand and the change in price
What is the relationship between the change in price and the change in quantity demanded if demand is inelastic?
The change in quantity demanded is less than the change in price
Test your understanding of price elasticity of demand, including inelastic demand, elastic demand, and how changes in price affect quantity demanded. Learn about the concepts of price sensitivity, demand curves, and percentage changes in price and quantity.
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