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Questions and Answers
What is the formula for price elasticity of demand, eD?
What is the formula for price elasticity of demand, eD?
What does the law of demand state?
What does the law of demand state?
What does the absolute value of the price elasticity measure represent?
What does the absolute value of the price elasticity measure represent?
How is the responsiveness of quantity demanded to a change in price shown?
How is the responsiveness of quantity demanded to a change in price shown?
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What does a negative price elasticity of demand indicate?
What does a negative price elasticity of demand indicate?
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What is the maximum price that can be charged for a good or service under price controls?
What is the maximum price that can be charged for a good or service under price controls?
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What is the minimum price that can be charged for a good or service under price controls?
What is the minimum price that can be charged for a good or service under price controls?
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Which historical figure attempted to set maximum prices for all commodities in the late 3rd century AD?
Which historical figure attempted to set maximum prices for all commodities in the late 3rd century AD?
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What is a well-known example of a price ceiling?
What is a well-known example of a price ceiling?
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What is a widely used example of a price floor?
What is a widely used example of a price floor?
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Study Notes
Price Elasticity of Demand
- The formula for price elasticity of demand (eD) is: eD = (% Change in Quantity Demanded) / (% Change in Price)
Law of Demand
- The law of demand states that: as the price of a good or service increases, the quantity demanded decreases, and vice versa, holding all other factors constant.
Absolute Value of Price Elasticity
- The absolute value of the price elasticity of demand (|eD|) represents the responsiveness of quantity demanded to a change in price.
Responsiveness of Quantity Demanded
- The responsiveness of quantity demanded to a change in price is shown by the magnitude of the price elasticity of demand.
Negative Price Elasticity
- A negative price elasticity of demand indicates an inverse relationship between price and quantity demanded. This means that as the price increases, the quantity demanded decreases, and vice versa.
Price Controls
- Price controls are government-imposed limits on the prices of goods or services.
- Price ceilings are maximum prices that can be charged for a good or service.
- Price floors are minimum prices that can be charged for a good or service.
Maximum Price
- The maximum price that can be charged for a good or service under price controls is set by the government as the price ceiling.
Minimum Price
- The minimum price that can be charged for a good or service under price controls is set by the government as the price floor.
Historical Figure in Price Controls
- Diocletian, Roman emperor in the late 3rd century AD, attempted to set maximum prices for all commodities through the "Edict on Maximum Prices".
Price Ceiling Example
- A well-known example of a price ceiling is rent control, where governments set maximum rents that landlords can charge for apartments.
Price Floor Example
- A widely used example of a price floor is the minimum wage, which sets a minimum hourly wage that employers must pay their workers.
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Description
Test your understanding of the price elasticity of demand with this quiz. Explore how changes in price impact quantity demanded and assess your knowledge of elasticity concepts.
