Economics 101: Test 2

Own-price elasticity of demand (Ed) specifically focuses on the responsiveness of quantity demanded to changes in price, not on inflation rate, consumer willingness to purchase, or the impact of changes in consumer income.

Elastic demand refers to a situation where the percentage change in quantity demanded is greater than the percentage change in price. This means that consumers are highly responsive to price changes, leading to significant shifts in quantity demanded compared to price changes. It indicates a relatively elastic demand curve.

Inelastic demand refers to a situation where the quantity demanded does not change significantly when the price changes. This indicates a relatively low responsiveness of consumers to price changes.

Perfectly inelastic demand occurs when the quantity demanded does not respond at all to changes in price, resulting in a price elasticity of demand of zero.

Perfectly elastic demand means that quantity demanded changes infinitely in response to any change in price.

The income elasticity of demand (Einc) specifically focuses on consumer responsiveness to changes in income, rather than other economic factors like inflation, price changes, or revenue generation.

Cross-price elasticity of demand specifically measures the percentage change in the quantity demanded of one good divided by the percentage change in the price of another good, showing how they are related.

Price elasticity of supply (Es) specifically focuses on how producers adjust the quantity supplied in response to a change in price. It is not about demand or revenue, but rather the supply side of the market dynamics.

Perfectly inelastic supply means that no matter how much the price changes, the quantity supplied remains the same. This results in a price elasticity of supply equaling zero.

Perfectly elastic supply occurs when the quantity supplied is responsive to price changes to an infinite degree, resulting in a horizontal supply curve. This means that producers are willing and able to supply any quantity of a good at a given price.

Elasticity measures the responsiveness of quantity demanded to a change in price or other factors affecting demand or supply. The formula provided calculates elasticity based on changes in quantity demanded and price.

Elastic demand refers to a situation where consumers are very responsive to price changes, resulting in a larger change in quantity demanded in percentage terms than the change in price. This means that when prices go up, quantity demanded goes down significantly, and vice versa.

Inelastic demand refers to a situation where consumers are not very responsive to price changes and the change in quantity demanded is smaller in percentage terms than the change in price. This is shown when %?Qd

When the absolute value of the price elasticity of demand (|Ed|) is equal to 1, it indicates unit elastic demand where the percentage change in quantity demanded is equal to the percentage change in price.

Substitutability in economics refers to the availability of alternative products that consumers can switch to if the price of a particular product increases. The more substitutes there are, the more elastic the demand becomes as consumers have options to choose from.

The correct answer explains that a larger portion of income spent on a product leads to a more elastic demand. This is because when a larger percentage of income is needed to purchase a product, consumers are more sensitive to price changes, making demand more elastic. The incorrect answers are misleading or incorrect in their understanding of the relationship between the portion of budget/income and the elasticity of demand.

Necessary goods are essential items that people require for their daily lives, so the demand for these goods tends to be more inelastic as consumers are less responsive to price changes for these items.

Luxury goods are typically associated with higher price points and perceived as non-essential, leading to more elastic demand where small changes in price can result in significant changes in quantity demanded.

The more time consumers have to adjust their purchasing behavior, the more elastic is demand. More time means more elastic demand; less time means less elastic demand.

The total revenue test for elasticity is a fundamental concept in economics that helps distinguish between elastic and inelastic demand. It shows how changes in price affect total revenue based on the elasticity of demand. Understanding this relationship is crucial for businesses to make pricing decisions that maximize revenue.

Normal goods are those for which demand increases as consumer income rises. Their income elasticity is positive and typically falls between 0 and 1.

Inferior goods are goods for which demand increases as consumer incomes fall, and demand decreases as consumer incomes rise. This is because people switch to more expensive goods as they can afford to, making the inferior goods less desirable.

A trade deficit occurs when a country imports more goods and services than it exports. This can have various economic implications on the country's economy.

The correct answer explains that when the cross-price elasticity of demand (Exy) is greater than 0, it indicates that goods x and y are substitutes. Incorrect answer A is false because Exy = 0 indicates unrelated goods, not complements. Incorrect answer B is false because Exy

The correct answer explains that when the cross price elasticity of x with respect to y is less than 0, goods x and y are complements as they are consumed together. When Exy > 0, goods x and y are substitutes, indicating that they are consumed in place of each other. If Exy = 0, it means that the goods are unrelated in consumption patterns.

In economics, market period refers to the period in which the supply of a product is fixed, and the elasticity of supply is close to zero, indicating that the supply cannot be increased quickly to match changes in demand. This concept is important in understanding how markets function and respond to changes in supply and demand at different timeframes.

The concept of short run in production economics refers to a specific time frame where certain resources or inputs are fixed and cannot be easily changed. This constraints impact the flexibility of decision-making and overall production output.