Principles of Economic Demand Quiz

Price is a key determinant of demand, reflecting the impact of cost on consumer willingness to purchase.

Consumer surplus represents the monetary gain consumers experience when they pay less for a good than the maximum price they are willing to pay.

Technological advancements, among other factors like input costs and government policies, can significantly influence the supply of goods and services.

Normal goods, like luxury items, experience increased demand as consumer incomes rise.

The law of demand asserts an inverse relationship between price and quantity demanded, stating that higher prices lead to lower demand.

Complementary goods, like cars and gasoline, are consumed together, so a change in the demand for one affects the other.

This law posits that as a person consumes more units of a good, the additional satisfaction (marginal utility) derived from each additional unit diminishes.

Market size is not a direct factor influencing demand elasticity; instead, elasticity is influenced by factors like price, substitutes, and consumer preferences.

Non-price determinants, such as consumer preferences, income, and expectations, also play a crucial role in influencing demand.

Income effect refers to how changes in consumer income impact the quantity of goods and services they are willing to buy.

Elasticity of demand measures how sensitive the quantity demanded is to changes in price, indicating consumer responsiveness.

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

Veblen goods defy the law of demand by becoming more desirable as their prices increase, often due to their association with prestige.

Perfectly elastic demand signifies that consumers will buy any quantity of a good at a specific price, resulting in a horizontal demand curve.