Price Elasticity of Demand Quiz
20 Questions
2 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What shape does the demand curve take under perfectly elastic demand?

  • Downward sloping
  • Vertical
  • Horizontal (correct)
  • Upward sloping
  • What happens to total revenue if prices are lowered when demand is elastic?

  • Total revenue fluctuates unpredictably
  • Total revenue increases (correct)
  • Total revenue remains unchanged
  • Total revenue decreases
  • What does the price elasticity of demand measure?

  • How responsive buyers are to price changes (correct)
  • The total revenue generated from sales
  • The relationship between supply and demand
  • The average price level of a product
  • What type of market structure is characterized by a large number of suppliers and no individual firm has the power to set prices?

    <p>Perfect Competition</p> Signup and view all the answers

    In a case of inelastic demand, what is the expected effect of raising prices on total revenue?

    <p>Total revenue increases</p> Signup and view all the answers

    If the price elasticity of demand is greater than 1, how is the demand characterized?

    <p>Elastic</p> Signup and view all the answers

    What happens to the quantity demanded when the price decreases, assuming ceteris paribus?

    <p>It increases</p> Signup and view all the answers

    What is the price elasticity of demand when it is perfectly inelastic?

    <p>Zero</p> Signup and view all the answers

    In the provided example, what was the price elasticity of demand (PED) for Uber rides after a price cut?

    <p>2</p> Signup and view all the answers

    Which of the following is a determinant of elasticity?

    <p>Proportion of income spent on the good</p> Signup and view all the answers

    Which of the following statements about inelastic demand is true?

    <p>Price changes have a minimal effect on quantity demanded</p> Signup and view all the answers

    In a monopolistic competition market, what is the behavior of firms regarding pricing?

    <p>Firms can influence prices but are not price makers.</p> Signup and view all the answers

    What should a company with elastic demand do to increase revenue?

    <p>Decrease prices</p> Signup and view all the answers

    Which market structure is characterized by a single firm dominating the market?

    <p>Monopoly</p> Signup and view all the answers

    During a drought, why might corn farmers increase their revenue despite a reduced supply?

    <p>The price of corn increases and demand is inelastic.</p> Signup and view all the answers

    What key factor contributes directly to determining sales in a business?

    <p>Revenue from pricing and quantity sold</p> Signup and view all the answers

    What is a characteristic of perfectly competitive markets in relation to consumer and producer knowledge?

    <p>Both producers and consumers have perfect knowledge.</p> Signup and view all the answers

    Which market structure is characterized by many buyers and sellers where products are identical?

    <p>Perfect competition</p> Signup and view all the answers

    What is a common misconception about price elasticity of demand?

    <p>Inelastic demand implies no change in quantity</p> Signup and view all the answers

    How does price responsiveness influence business decisions?

    <p>It affects how businesses set prices and forecast sales</p> Signup and view all the answers

    Study Notes

    Demand Responsiveness and Changing Market Conditions

    • Price Elasticity of Demand (PED) measures how responsive buyers are to price changes.
    • PED is calculated as: (% change in quantity demanded) / (% change in price).
    • A PED greater than 1 indicates elastic demand, meaning a price change significantly affects the quantity demanded.
    • A PED less than 1 indicates inelastic demand, meaning a price change has a relatively small impact on the quantity demanded.
    • Perfectly elastic demand has an infinite PED, meaning there is an unlimited response to any price change (horizontal demand curve).
    • Perfectly inelastic demand has a PED of 0, meaning there is no response to any price change (vertical demand curve).
    • Elastic demand means lowering prices increases revenue, while raising prices decreases revenue.
    • Inelastic demand means raising prices increases revenue, while lowering prices decreases revenue.
    • Factors influencing PED:
      • Availability of substitutes: More substitutes means more elastic demand.
      • Proportion of income spent on the good: Smaller proportion means less elastic demand.
      • Time period to adjust consumption: Longer time periods lead to more elastic demand.
      • Market competitiveness: More competition means greater elasticity for individual suppliers.

    Market Structures

    • Perfect Competition:
      • Many firms, none with market power to influence price (price takers).
      • Free entry and exit.
      • Perfect knowledge of the market for buyers and sellers.
      • Example: Agriculture (though no perfect examples exist).
      • Demand curve is horizontal for individual firms.
    • Monopoly:
      • Single firm dominates the market.
      • High barriers to entry.
      • Can set price, subject to consumer demand.
      • Examples: National Grid, Microsoft operating system, Amazon retail.
    • Monopolistic Competition:
      • Many firms competing with differentiated products.
      • Some control over price, but limited by competition.
      • Easy entry and exit.
      • Examples: Restaurants, clothing stores, hair salons.
    • Oligopoly:
      • Few dominant firms control a large market share.
      • Interdependence between firms, as actions of one impact others.
      • Significant barriers to entry.
      • Examples: Airline industry, car manufacturing, telecommunications.

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    Related Documents

    Description

    Test your understanding of Price Elasticity of Demand (PED) and its implications in changing market conditions. This quiz will cover the calculation of PED, its classifications, and how it affects revenue based on demand elasticity. Challenge yourself to apply the concepts effectively!

    More Like This

    Understanding Demand and the Law of Demand
    12 questions
    Economics: Demand and Quantity Demanded
    7 questions
    Economics Demand Concepts Quiz
    82 questions
    Use Quizgecko on...
    Browser
    Browser