Principles of Demand and Market Behavior Quiz

Government regulations do not directly influence consumer demand as determinants usually focus on consumer preferences, income, prices, and related factors.

The law of demand asserts an inverse relationship between price and quantity demanded—higher prices typically lead to lower quantities demanded.

Government policies, such as taxes and regulations, can impact the supply side of the market by influencing production costs and availability of resources.

The law of supply posits a direct relationship between price and quantity supplied—higher prices generally lead to an increase in the quantity of a good supplied.

When the price of a substitute good rises, consumers are more likely to choose the original good, leading to an increase in its demand.

Perfectly competitive markets involve numerous buyers and sellers, promoting fair competition without significant market power for any participant.

Simultaneous increases in both demand and supply generally lead to a higher equilibrium price and quantity in the market.

In long-run equilibrium for a perfectly competitive market, price aligns with marginal cost, ensuring economic efficiency.

Monopolies face high entry barriers, limiting competition, while monopolistic competition involves multiple firms with lower entry barriers.

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

The law of diminishing marginal utility posits that as individuals consume more units of a good, the additional satisfaction derived from each additional unit decreases.

Income elasticity of demand gauges how consumer demand changes in response to fluctuations in income levels.

Product differentiation in monopolistic competition aims to reduce price elasticity by making products appear unique, limiting easy substitution by consumers.

Giffen goods exhibit an unusual behavior where higher prices lead to increased demand due to the dominating impact of the income effect over the substitution effect.

Normal goods experience increased demand as incomes rise, while inferior goods see increased demand when incomes fall.

A perfectly elastic demand curve indicates infinite elasticity, meaning any price change results in an instantaneous quantity demanded change.

Perfectly inelastic demand means the quantity demanded does not change in response to price variations, resulting in an elasticity coefficient of 0.