#1
What does the law of demand state?
As price increases, quantity demanded decreases
ExplanationInverse relationship between price and quantity demanded.
#2
What is the concept of market equilibrium?
The point where quantity demanded equals quantity supplied
ExplanationMarket stability; no shortage or surplus.
#3
What is the law of diminishing marginal utility?
As the quantity consumed increases, the marginal utility decreases
ExplanationDecline in additional satisfaction gained from consuming one more unit of a good.
#4
What is the equation for calculating price elasticity of demand?
Percentage change in quantity demanded / Percentage change in price
ExplanationMeasure of responsiveness of quantity demanded to price changes.
#5
What is consumer surplus?
The difference between the maximum price a consumer is willing to pay and the actual price
ExplanationBenefit consumers receive when they pay less than the maximum price they are willing to pay.
#6
What does a price ceiling set below the equilibrium price result in?
Shortage
ExplanationExcess demand; quantity demanded exceeds quantity supplied.
#7
What is the income elasticity of demand?
The percentage change in quantity demanded divided by the percentage change in income
ExplanationMeasure of how quantity demanded changes with changes in income.
#8
What is a normal good?
A good for which demand increases as income increases
ExplanationGoods for which demand rises as consumer income rises.
#9
What is a Giffen good?
A good for which demand decreases as income increases
ExplanationContrary to the law of demand; higher price leads to higher demand due to income effects.
#10
What does a perfectly elastic demand curve look like?
Horizontal line
ExplanationInfinite elasticity; quantity demanded changes infinitely with any change in price.
#11
What is the relationship between price elasticity of demand and total revenue?
They have an inverse relationship
ExplanationWhen demand is elastic, price decrease increases total revenue; when demand is inelastic, price decrease decreases total revenue.
#12
What is the slope of the demand curve if demand is perfectly elastic?
Infinity
ExplanationInfinite slope; any quantity is demanded at a fixed price.
#13
What is the difference between a movement along the demand curve and a shift of the demand curve?
A movement along the demand curve is caused by changes in price, while a shift of the demand curve is caused by changes in factors other than price
ExplanationChange in quantity demanded due to change in price vs. change in quantity demanded due to factors other than price.