Understanding Economic Forces on Demand Quiz

Cost of production is a determinant of supply, not demand.

The law of demand states that there is an inverse relationship between price and quantity demanded.

Complementary goods have an inverse relationship; an increase in the price of one leads to a decrease in demand for the other.

Substitute goods can be used in place of each other, and coffee and tea are examples of substitutes.

Production elasticity is not a recognized type of demand elasticity.

A price elasticity less than 1 indicates inelastic demand, meaning quantity demanded is less responsive to price changes.

Negative cross-price elasticity indicates that the goods are substitutes; when the price of one rises, demand for the other increases.

Changes in the price of the product lead to movements along the demand curve, not shifts.

Inferior goods have a negative income elasticity; as income increases, demand decreases.

Income level is not a determinant of price elasticity; factors include availability of substitutes, necessity, and time.

An infinite price elasticity implies that quantity demanded is infinitely responsive to any price change, indicating perfectly elastic demand.

Perfectly inelastic demand means quantity demanded does not change with any price variation.