Demand

Question 1

What is demand in economics?

Answer 1

Demand is the quantity of a good or service that consumers are willing and able to purchase at various prices.

Question 2

What does ‘allocative efficiency’ mean?

Answer 2

Allocative efficiency occurs when resources are distributed in such a way that maximizes consumer satisfaction.

Question 3

Define ‘derived demand’.

Answer 3

Derived demand refers to the demand for a good or service that arises from the demand for another good or service.

Question 4

What is ‘competitive demand’?

Answer 4

Competitive demand refers to the demand for goods that are substitutes for each other.

Question 5

True or False: Inelastic demand means that quantity demanded changes significantly with a price change.

Answer 5

False

Question 6

What does ‘elastic demand’ indicate?

Answer 6

Elastic demand indicates that quantity demanded changes significantly in response to price changes.

Question 7

Fill in the blank: If the price elasticity of demand is greater than 1, demand is considered ___.

Answer 7

elastic

Question 8

Fill in the blank: If the price elasticity of demand is less than 1, demand is considered ___.

Answer 8

inelastic

Question 9

What is the formula for calculating price elasticity of demand?

Answer 9

Price elasticity of demand = (% change in quantity demanded) / (% change in price)

Question 10

What does it mean if demand is perfectly inelastic?

Answer 10

Perfectly inelastic demand means that quantity demanded does not change regardless of price changes.

Question 11

What is an example of a good with elastic demand?

Answer 11

Luxury goods often have elastic demand.

Question 12

What is an example of a good with inelastic demand?

Answer 12

Necessities like insulin for diabetics typically have inelastic demand.

Question 13

True or False: The demand curve for elastic goods is steeper than that for inelastic goods.

Answer 13

False

Question 14

What effect does a decrease in price have on total revenue for a product with elastic demand?

Answer 14

Total revenue increases.

Question 15

What effect does a decrease in price have on total revenue for a product with inelastic demand?

Answer 15

Total revenue decreases.

Question 16

What factors can affect the elasticity of demand?

Answer 16

Availability of substitutes, necessity vs luxury, proportion of income spent on the good, and time period considered.

Question 17

Define ‘unitary elastic demand’.

Answer 17

Unitary elastic demand occurs when the percentage change in quantity demanded is equal to the percentage change in price.

Question 18

What is the relationship between price and total revenue for elastic demand?

Answer 18

In elastic demand, price and total revenue move in opposite directions.

Question 19

What is the relationship between price and total revenue for inelastic demand?

Answer 19

In inelastic demand, price and total revenue move in the same direction.

Question 20

How does time affect the elasticity of demand?

Answer 20

Demand tends to be more elastic in the long run than in the short run.

Question 21

What is ‘cross-price elasticity of demand’?

Answer 21

Cross-price elasticity of demand measures how the quantity demanded of one good changes in response to a price change of another good.

Question 22

What does a positive cross-price elasticity indicate?

Answer 22

A positive cross-price elasticity indicates that the two goods are substitutes.

Question 23

What does a negative cross-price elasticity indicate?

Answer 23

A negative cross-price elasticity indicates that the two goods are complements.

Question 24

True or False: The demand for a good is always elastic.

Answer 24

False

Question 25

What is the significance of the demand curve’s shift?

Answer 25

A shift in the demand curve indicates a change in demand due to factors other than price.

Question 26

What might cause a rightward shift in the demand curve?

Answer 26

An increase in consumer income, increased consumer preferences, or a decrease in the price of substitutes.

Question 27

What might cause a leftward shift in the demand curve?

Answer 27

A decrease in consumer income, decreased consumer preferences, or an increase in the price of substitutes.

Question 28

What is ‘income elasticity of demand’?

Answer 28

Income elasticity of demand measures how the quantity demanded of a good changes as consumer income changes.

Question 29

What does a positive income elasticity indicate?

Answer 29

A positive income elasticity indicates that the good is a normal good.

Question 30

What does a negative income elasticity indicate?

Answer 30

A negative income elasticity indicates that the good is an inferior good.

Question 31

What is ‘substitute goods’?

Answer 31

Substitute goods are goods that can be used in place of each other.

Question 32

What is ‘complementary goods’?

Answer 32

Complementary goods are goods that are used together, where the demand for one increases the demand for the other.

Question 33

What is ‘market demand’?

Answer 33

Market demand is the total quantity of a good or service demanded by all consumers in a market at various prices.

Question 34

True or False: Demand is only influenced by price.

Answer 34

False