10 Questions
What does the price elasticity of demand measure?
Responsiveness of quantity demanded to a change in price
In the equation for price elasticity of demand (PEd), what is on the top and bottom?
Quantity demanded on the top, price on the bottom
What happens to quantity demanded when the price goes up, according to the basic law of demand?
Quantity demanded will decrease
What does the equation PV = (Percentage change in quantity demanded) / (Percentage change in price) represent?
Price elasticity of demand
Why is it important to remember the order in the price elasticity of demand equation?
To ensure the correct interpretation of the measure
What is the definition of price elasticity of demand (PEd)?
The price elasticity of demand (PEd) measures the responsiveness of quantity demanded given a change in price.
What does the equation for price elasticity of demand (PEd) represent?
The equation for price elasticity of demand (PEd) represents the percentage change in quantity demanded over the percentage change in price, calculated as: $PEd = rac{ ext{Percentage change in quantity demanded}}{ ext{Percentage change in price}}$.
Why is it important to remember the order in the price elasticity of demand equation?
It is important to remember the order in the price elasticity of demand equation because quantity demanded is on the top and price is on the bottom in the equation. Remembering this order ensures the correct interpretation of the calculated price elasticity of demand.
What does the basic law of demand state?
The basic law of demand states that when the price goes up, quantity demanded will decrease, and when the price goes down, quantity demanded will increase.
What important information does the price elasticity of demand provide?
The price elasticity of demand provides important information about the responsiveness of quantity demanded to changes in price, which helps in understanding consumer behavior and market dynamics.
Study Notes
Price Elasticity of Demand
- Measures the responsiveness of the quantity demanded of a good to a change in its price.
- Equation: PEd = (Percentage change in quantity demanded) / (Percentage change in price)
- Top: Percentage change in quantity demanded
- Bottom: Percentage change in price
Law of Demand
- When the price goes up, quantity demanded decreases.
- States that as the price of a good increases, the quantity demanded of it decreases, ceteris paribus.
Importance of Price Elasticity of Demand
- Provides important information about how consumers respond to changes in price.
- Helps businesses and policymakers understand the potential impact of price changes on demand.
Key Notes
- Remembering the order in the price elasticity of demand equation is important to avoid incorrect calculations.
- The definition of price elasticity of demand is a measure of how responsive the quantity demanded of a good is to a change in its price.
Test your knowledge of price elasticity of demand with this quiz. Challenge yourself to understand how changes in price impact the quantity demanded and measure the responsiveness of consumers.
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