Supply and Demand Quiz
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Questions and Answers

What happens to the demand for inferior goods when income decreases?

  • Demand increases (correct)
  • Demand fluctuates unpredictably
  • Demand remains constant
  • Demand decreases

    • Which statement best describes the relationship between price and quantity demanded for perfectly inelastic demand?

  • Demand increases as price increases
  • Demand does not change when price changes (correct)
  • Demand decreases as price decreases
  • Demand varies significantly with price changes

    • What is the coefficient of price elasticity when demand is unitary elastic?

  • Zero
  • One (correct)
  • Less than one
  • Greater than one

    • When the price elasticity of demand coefficient is greater than one, what does it indicate?

    <p>Demand is price elastic (C)</p> Signup and view all the answers

    How is the coefficient of price elasticity of demand typically calculated?

    <p>Percentage change in quantity demanded divided by percentage change in price (D)</p> Signup and view all the answers

    What characterizes the demand curve for inelastic demand?

    <p>Downward sloping curve (A)</p> Signup and view all the answers

    What effect would a significant increase in income have on the demand for inferior goods?

    <p>Demand decreases (D)</p> Signup and view all the answers

    If the price of a good increases by 10% and the quantity demanded drops by 30%, which statement about the price elasticity of demand is true?

    <p>Demand is elastic (C)</p> Signup and view all the answers

    What is a typical feature of inferior goods?

    <p>People buy less when their incomes rise (B)</p> Signup and view all the answers

    Which of these best describes the elasticity of demand for luxury items?

    <p>Elastic (A)</p> Signup and view all the answers

    How does the availability of close substitutes impact the price elasticity of demand?

    <p>It makes the demand more elastic. (D)</p> Signup and view all the answers

    Which factor is likely to make demand more inelastic?

    <p>Strong brand loyalty. (C)</p> Signup and view all the answers

    What happens to total revenue when demand is inelastic and the price is reduced?

    <p>Total revenue decreases. (B)</p> Signup and view all the answers

    Which type of elasticity indicates that a change in price does not alter the quantity demanded at all?

    <p>Perfectly inelastic demand. (D)</p> Signup and view all the answers

    Which scenario describes a product with unitary elastic demand?

    <p>Percentage change in price equals the percentage change in quantity demanded. (B)</p> Signup and view all the answers

    When considering price elasticity of demand, what does a coefficient greater than one indicate?

    <p>Elastic demand. (A)</p> Signup and view all the answers

    How does habitual consumption affect price elasticity of demand?

    <p>It leads to inelastic demand. (C)</p> Signup and view all the answers

    Which of the following is a characteristic of perfectly elastic demand?

    <p>Consumers will buy any amount at one price. (D)</p> Signup and view all the answers

    What role does consumer income play in determining demand elasticity?

    <p>Products that take up a high percentage of income tend to have more elastic demand. (A)</p> Signup and view all the answers

    What is one of the limitations of elasticity assessment for producers?

    <p>Data used can often be inaccurate or incomplete. (B)</p> Signup and view all the answers

    In a market with both necessities and luxuries, which statement is true regarding their demand elasticity?

    <p>Necessities typically have inelastic demand while luxuries are more elastic. (D)</p> Signup and view all the answers

    How does price discrimination benefit businesses?

    <p>It allows charging different prices based on demand elasticity. (D)</p> Signup and view all the answers

    What is an example of a factor leading to price inelastic demand?

    <p>High necessity of the good. (D)</p> Signup and view all the answers

    What happens to the demand for rubber duckies as the price of oil increases?

    <p>Demand decreases as consumers might skip buying them. (A)</p> Signup and view all the answers

    How do consumers typically respond to higher gasoline prices?

    <p>They may forego road trips altogether. (B)</p> Signup and view all the answers

    What is indicated by a rightward shift of the demand curve for laptops?

    <p>Increased quantity demanded at all price levels. (A)</p> Signup and view all the answers

    What effect does a decrease in income generally have on the demand for normal goods?

    <p>Demand decreases. (A)</p> Signup and view all the answers

    Why might demand for the cheapest car on the market decrease when income rises?

    <p>Consumers shift their preference to higher-quality cars. (B)</p> Signup and view all the answers

    What does the demand curve represent?

    <p>How price changes influence consumer purchasing behavior. (A)</p> Signup and view all the answers

    What occurs when the price of oil rises significantly?

    <p>Demand for some products decreases as consumers seek substitutes. (C)</p> Signup and view all the answers

    In which scenario would the demand for a normal good typically shift to the left?

    <p>When consumer incomes decrease. (A)</p> Signup and view all the answers

    What might consumers do when the prices of goods made from oil rise?

    <p>Look for cheaper alternatives. (A)</p> Signup and view all the answers

    How is the demand for products like gasoline affected by price increases?

    <p>Consumers buy less, but still demand some. (A)</p> Signup and view all the answers

    Which of the following illustrates the law of demand?

    <p>Lower prices lead to increased quantity demanded. (A)</p> Signup and view all the answers

    What can be inferred about a good that shifts left when income increases?

    <p>It is an inferior good. (A)</p> Signup and view all the answers

    What happens to the quantity demanded of a laptop if the price increases?

    <p>It decreases. (C)</p> Signup and view all the answers

    In what way does a consumer's perception of a product's value influence demand?

    <p>Higher perceived value typically increases demand at given price points. (C)</p> Signup and view all the answers

    If a consumer values oil very highly when prices rise, what does that imply about their behavior?

    <p>They will continue purchasing despite higher costs. (A)</p> Signup and view all the answers

    What indicates that demand is inelastic?

    <p>The absolute value of elasticity is less than 1. (B)</p> Signup and view all the answers

    Why do adult smokers tend to have a smaller elasticity of demand compared to youth smokers?

    <p>Adults generally have more disposable income. (B)</p> Signup and view all the answers

    If the absolute value of elasticity of demand is greater than 1, what does this imply?

    <p>Price changes have a larger effect on quantity demanded. (A)</p> Signup and view all the answers

    In the context of electricity demand, what would likely happen if the price of electricity is increased?

    <p>Total revenue would likely increase due to inelastic demand. (A)</p> Signup and view all the answers

    What is the outcome when the elasticity of demand equals 1?

    <p>A price increase will lead to no change in total revenue. (D)</p> Signup and view all the answers

    What is typically the consumer response when a good has elastic demand?

    <p>A small price increase results in a large drop in quantity demanded. (C)</p> Signup and view all the answers

    Why might a company choose to lower prices when demand is elastic?

    <p>To increase total revenue through higher quantity sold. (D)</p> Signup and view all the answers

    What does a demand elasticity ratio of less than 1 signify?

    <p>Consumers remain largely unresponsive to price changes. (B)</p> Signup and view all the answers

    In terms of revenue, if demand is inelastic, how should a company adjust its prices?

    <p>Raise prices to increase overall revenue. (A)</p> Signup and view all the answers

    What primarily determines whether a business should increase or decrease prices to generate more revenue?

    <p>Customer sensitivity to price changes (D)</p> Signup and view all the answers

    What is the formula for calculating the elasticity of demand?

    <p>Percentage change in quantity demanded over percentage change in price (D)</p> Signup and view all the answers

    If a product's price increases by 10% and the quantity demanded decreases by 5%, what is the elasticity of demand?

    <p>-0.5 (C)</p> Signup and view all the answers

    When a business raises its prices but does not see a significant decrease in quantity demanded, what can be said about its elasticity of demand?

    <p>Demand is inelastic (C)</p> Signup and view all the answers

    What does the size of the elasticity number indicate about consumer response?

    <p>How much consumers will react to a price change (A)</p> Signup and view all the answers

    Which scenario represents a business likely to decrease prices in order to generate more revenue?

    <p>An airline (B)</p> Signup and view all the answers

    Why is percentage change preferred over absolute change when calculating elasticity?

    <p>It standardizes changes across different price points (D)</p> Signup and view all the answers

    In the context of elasticity of demand, what does an elasticity value of less than 1 imply?

    <p>Demand is inelastic (A)</p> Signup and view all the answers

    If a business increases its prices but finds that revenue does not increase, what might this suggest about its demand?

    <p>Demand is elastic (D)</p> Signup and view all the answers

    What is meant by 'elastic demand'?

    <p>Demand where the percentage change in quantity is greater than the percentage change in price (C)</p> Signup and view all the answers

    If raising the price of a product leads to a small decrease in quantity demanded, what does this indicate about its elasticity?

    <p>It is price inelastic (B)</p> Signup and view all the answers

    What happens to revenue when the price of a product with elastic demand is increased?

    <p>Revenue decreases (C)</p> Signup and view all the answers

    Why might a high-end bookstore consider giving educator discounts?

    <p>To increase the quantity demanded (B)</p> Signup and view all the answers

    Which of the following best illustrates the relationship defined by the Law of Demand?

    <p>Higher prices lead to lower quantity demanded (D)</p> Signup and view all the answers

    What relationship does the demand curve illustrate?

    <p>As price increases, quantity demanded decreases. (C)</p> Signup and view all the answers

    At which price is the demand for oil at its lowest, according to the example provided?

    <p>$55 per barrel (C)</p> Signup and view all the answers

    Which of the following is considered a high-value use of oil?

    <p>Providing jet fuel for airplanes (D)</p> Signup and view all the answers

    What happens to the quantity demanded for oil as the price decreases from $20 to $5 per barrel?

    <p>It increases. (A)</p> Signup and view all the answers

    What is shown on the vertical axis of a demand curve graph?

    <p>Price (A)</p> Signup and view all the answers

    Which statement best describes the nature of demand curves for different products?

    <p>Each good has a unique demand curve with similar principles. (B)</p> Signup and view all the answers

    What is the quantity demanded when oil is priced at $20 per barrel?

    <p>25 million barrels (A)</p> Signup and view all the answers

    What effect do low oil prices have on the demand of high and low-value products?

    <p>Both high and low-value products are purchased. (C)</p> Signup and view all the answers

    Study Notes

    Supply and Demand

    • Supply and demand are fundamental economic concepts, typically represented graphically.
    • Demand curves illustrate the quantity of a good consumers will buy at different prices.
    • Lower prices lead to increased quantity demanded, as seen on sales days like Black Friday.
    • Every good/service has its own demand curve, exhibiting a negative relationship between price and quantity demanded.
    • Oil demand curve shows varying quantity demanded at different prices (e.g., 5 million barrels at $55/barrel, 50 million barrels at $5/barrel).
    • Oil has both high-value uses (like jet fuel) and low-value uses (like gasoline).
    • High oil prices decrease demand for low-value uses, with only high-value users remaining.

    Demand Curves and Goods

    • Demand curves show how quantity demanded changes with price for different goods.
    • Laptops and cars are examples, both following the law of demand (higher price, lower quantity demanded; lower price, higher quantity demanded).
    • Income affects demand for different goods differently.
    • Normal goods have increased demand with higher income (laptop).
    • Inferior goods have decreased demand with higher income (cheapest car).

    Price Elasticity of Demand (PED)

    • PED measures demand's responsiveness to price changes.
    • PED formula: percentage change in quantity demanded / percentage change in price.
    • PED values:
      • 0: Perfectly inelastic demand (no change in quantity demanded with price changes).
      • 0-1: Inelastic demand (quantity demanded is less responsive to price changes).
      • 1: Unitary elastic demand (percentage changes in price and quantity are equal).

      • 1: Elastic demand (quantity demanded is more responsive to price changes).

    • Factors influencing PED:
      • Number of close substitutes: More substitutes = more elastic demand.
      • Price relative to income: Higher price relative to income = more elastic demand.
      • Cost of switching: Higher switching costs = less elastic demand.
      • Brand loyalty/habits: Strong brand loyalty = less elastic demand.
      • Necessity vs. luxury: Necessities = inelastic demand, luxuries = elastic demand.
    • PED and Total Revenue:
      • Inelastic demand: Price increase leads to increased total revenue.
      • Elastic demand: Price decrease leads to increased total revenue.
      • Unitary elasticity: Price change has no effect on total revenue.

    Elasticity of Demand and Pricing

    • Elasticity is how sensitive consumers are to price changes.
    • Formula: Percentage change in quantity demanded / percentage change in price. Negative sign indicates inverse relationship between price and quantity demanded.
    • Absolute value is used, as the sign is already implicit.
    • Elasticity < 1: Inelastic demand (small change in quantity demanded for a large price change). Increased price leads likely to increased revenue; decrease in price leads likely to a decrease in revenue.
    • Elasticity > 1: Elastic demand (large change in quantity demanded for a small price change). Increased price leads likely to a decreased revenue; decrease in price leads likely to an increase in revenue.
    • Elasticity = 1: Unitary elastic demand (percentage change in quantity demanded equals percentage change in price).
    • Youth smokers tend to be more price-sensitive than adult smokers.
    • Factors that influence elasticity include income, addiction (nicotine), and disposable income.
    • Electricity demand is inelastic, leading to increases in revenue when prices increase. Airlines have elastic demand, so low rates lead to higher revenue.

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    Description

    Test your understanding of supply and demand concepts, including demand curves and how they illustrate consumer behavior at varying prices. Explore real-world examples such as the demand for oil and how it shifts based on market prices. This quiz will challenge your grasp of fundamental economic principles.

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