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Questions and Answers
In the example comparing Pringles and airfare, airfare has a higher price elasticity of demand because it is easier to find substitutes for travel.
False
The demand for salt is less elastic compared to Rolex watches because salt is a necessity and Rolex is a luxury.
True
The price elasticity of demand is generally higher for goods in the long run than in the short run because consumers can find alternatives over time.
True
A perfectly inelastic demand curve is vertical, meaning that changes in price do not affect the quantity demanded.
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A demand curve with unit elasticity means that a percentage change in price leads to an identical percentage change in quantity demanded.
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When the demand curve is relatively flat, it indicates that demand is highly elastic.
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A horizontal demand curve represents perfectly elastic demand, where any price increase will cause the quantity demanded to drop to zero.
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If the demand for a product is elastic, increasing the price will increase total revenue.
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When demand is inelastic, a price increase will lead to higher total revenue.
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When demand is unit elastic, a change in price does not affect total revenue.
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Study Notes
Price Elasticity of Demand
- Products with more available substitutes have a higher price elasticity of demand.
- Airfare has a higher elasticity than Pringles due to the availability of alternative modes of transportation.
- Necessities, like salt, have low elasticity, as consumers are less responsive to price changes.
- Luxury goods, like Rolex watches, have higher elasticity, as consumers are more likely to purchase them when prices are lower.
- Long-term elasticity tends to be higher than short-term elasticity because consumers have more time to find alternatives.
Demand Curve Shapes & Elasticity
- A vertical demand curve represents perfectly inelastic demand, indicating no change in quantity demanded despite price changes.
- A demand curve with unit elasticity means that percentage changes in price and quantity demanded are equal.
- A relatively flat demand curve indicates high elasticity, meaning that a small price change leads to a significant change in quantity demanded.
- A horizontal demand curve represents perfectly elastic demand, where any price increase will result in zero quantity demanded.
Price Changes and Total Revenue
- When demand is elastic, a price increase will decrease total revenue.
- When demand is inelastic, a price increase will increase total revenue.
- When demand is unit elastic, a change in price will not affect total revenue.
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Description
This quiz explores the concept of price elasticity of demand by comparing different products like Pringles and airfare. It highlights how the availability of substitutes can affect elasticity and consumer choices. Test your knowledge on the factors influencing price changes and demand sensitivity.
