#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 role of the invisible hand in a market economy?
Individual self-interest guiding resources to their most efficient uses
ExplanationSpontaneous market mechanism for resource allocation
#3
In the supply and demand model, what happens to the equilibrium price and quantity when demand increases and supply decreases?
Equilibrium price and quantity both increase
ExplanationPrice and quantity move in same direction due to demand increase and supply decrease
#4
What is the concept of price elasticity of demand?
A measure of how much the quantity demanded changes in response to a change in price
ExplanationSensitivity of quantity demanded to price changes
#5
What is the difference between a change in quantity demanded and a shift in demand?
A change in quantity demanded is caused by a change in price, while a shift in demand is caused by factors other than price
ExplanationPrice change vs. non-price factors affecting demand
#6
What does the price elasticity of supply measure?
How much the quantity supplied changes in response to a change in price
ExplanationResponsiveness of quantity supplied to price change
#7
What happens to equilibrium price and quantity when both demand and supply increase by the same percentage?
Equilibrium price and quantity both increase
ExplanationSimultaneous increase in demand and supply boosts price and quantity
#8
Explain the concept of a price ceiling and its impact on the market.
A maximum price set by the government, leading to a shortage of goods
ExplanationUpper limit on prices causing supply shortage
#9
What is a perfectly elastic demand curve?
A horizontal line
ExplanationQuantity demanded infinitely responsive to price change
#10
How does the government-imposed price floor affect the market?
Causes a surplus of goods
ExplanationMinimum price above market equilibrium leading to excess supply
#11
Explain the concept of a Giffen good in the context of demand.
A good for which demand decreases as income increases
ExplanationContrary behavior where demand falls with income rise
#12
How does the concept of a subsidy impact the supply of a good?
Decreases the cost of production, leading to an increase in supply
ExplanationGovernment support reduces production expenses, boosting supply
#13
What is the relationship between elasticity and the slope of a demand curve?
Elasticity is inversely related to the slope of a demand curve
ExplanationFlatter slope indicates higher elasticity
#14
What is the income effect in the context of demand?
The change in quantity demanded due to a change in consumer income
ExplanationIncome change altering purchasing power and demand