#1
In economics, what is market equilibrium?
A situation where quantity demanded equals quantity supplied
ExplanationBalance between demand and supply.
#2
What happens to price and quantity when there is a shortage in the market?
Price increases, quantity decreases
ExplanationScarcity drives prices up and reduces availability.
#3
What is consumer surplus?
The difference between the maximum price a consumer is willing to pay and the market price
ExplanationBenefit consumers gain from paying less than willing.
#4
What is the main assumption of the law of demand?
Tastes and preferences remain constant
ExplanationConsumers' preferences stay consistent.
#5
What does the PPF (Production Possibilities Frontier) illustrate?
The combination of goods and services that can be produced with limited resources
ExplanationBoundary of achievable production given constraints.
#6
What is the main assumption of the law of supply?
The cost of production remains constant
ExplanationProduction expenses stay steady.
#7
What does the concept of elasticity measure?
How responsive quantity demanded is to changes in price
ExplanationResponsiveness of demand to price shifts.
#8
What does a shift to the left of the supply curve indicate?
Decrease in supply
ExplanationReduced quantity of goods available.
#9
What is the effect of a price floor in a market?
It creates a surplus
ExplanationSets a minimum price leading to excess supply.
#10
How does an increase in income affect the demand curve?
Shifts the demand curve right
ExplanationMore purchasing power, increased demand.
#11
What is the primary goal of a price ceiling?
To prevent prices from rising above a certain level
ExplanationImposes a maximum price limit.
#12
What does the elasticity of demand measure?
How responsive quantity demanded is to changes in price
ExplanationSensitivity of demand to price changes.
#13
What is the formula for price elasticity of demand?
Percentage change in quantity demanded / Percentage change in price
ExplanationMeasure of responsiveness in demand.
#14
What is the concept of utility in economics?
The total satisfaction received from consuming a good or service
ExplanationMeasure of satisfaction from consumption.
#15
What is the relationship between price elasticity and total revenue?
Inversely related
ExplanationAs elasticity increases, revenue decreases.
#16
What is the primary determinant of elasticity of supply?
The time period under consideration
ExplanationDuration influencing production flexibility.
#17
What does a price ceiling below the equilibrium price cause in the market?
A shortage
ExplanationInsufficient supply to meet demand.
#18
What is the effect of an increase in the price of a complementary good on the demand for another good?
Decrease in demand
ExplanationRelated product's higher price reduces demand.
#19
What is the law of diminishing marginal utility?
As consumption of a product increases, the marginal utility derived from each additional unit decreases
ExplanationReduced satisfaction per additional unit consumed.
#20
What does a decrease in the price of a substitute good do to the demand for another good?
Increase in demand
ExplanationCheaper substitute boosts demand.
#21
What is the Laffer curve used to analyze?
Tax revenue and tax rates
ExplanationRelationship between tax rates and revenue.
#22
What does a perfectly elastic demand curve look like?
Horizontal line
ExplanationQuantity demanded infinitely responsive to price.
#23
What does the deadweight loss represent in a market?
The total loss in economic welfare
ExplanationLoss of efficiency due to market distortion.
#24
What does a subsidy do to the market equilibrium?
Decreases price, increases quantity
ExplanationGovernment payment lowers cost, boosts supply.
#25
What is the difference between a movement along the demand curve and a shift of the demand curve?
A movement is caused by changes in price, while a shift is caused by changes in factors other than price
ExplanationChange in quantity demanded vs. change in demand.