Economics test units 3, 4 5 and 6

What is price elasticity of demand and how is it calculated?

• Price elasticity of demand is calculated by dividing the percentage change in price by the percentage change in consumer preferences.

• Price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price.

• Price elasticity of demand is calculated by dividing the percentage change in quantity supplied by the percentage change in price.

• Price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in income.

Explain the concept of price elasticity of supply and provide an example.

• Price elasticity of supply is a measure of how much the quantity demanded of a good responds to a change in the price of that good

• Price elasticity of supply measures the change in demand for a product when the price changes

• Price elasticity of supply is a measure of how much the quantity supplied of a good responds to a change in the price of that good. It is calculated as the percentage change in quantity supplied divided by the percentage change in price. For example, if the price of strawberries increases by 10% and the quantity supplied increases by 20%, the price elasticity of supply would be 20%/10% = 2.

• Price elasticity of supply is calculated as the percentage change in price divided by the percentage change in quantity supplied

Define income elasticity of demand and discuss its significance in economics.

• Income elasticity of demand is a measure of how much the quantity demanded of a good responds to a change in consumer income. It is an important concept in economics as it helps to understand how consumer demand for a good or service changes as their income changes. This information is valuable for businesses and policymakers when making decisions about pricing, production, and taxation.

• Income elasticity of demand only applies to luxury goods and not essential items

• Income elasticity of demand is irrelevant in economics and has no significance

• Income elasticity of demand measures the change in demand for a good based on the price of the good

What are externalities and how do they impact market efficiency?

• Externalities are costs or benefits that affect a third party not directly involved in the economic transaction, and they impact market efficiency by causing market failure.

• Externalities have no impact on market efficiency

• Externalities only affect the buyer and seller directly

• Externalities are only positive and never negative

Explain the free rider problem and provide an example of it in real-world economics.

• When people pay for the cost of pollution control to enjoy the benefits of a clean environment

• The example of the free rider problem in real-world economics is when people enjoy the benefits of a clean environment without paying for the cost of pollution control.

• When people do not benefit from a clean environment

• When people pay for the cost of pollution control but do not enjoy the benefits of a clean environment

Discuss the impact of taxes on consumer behavior and market equilibrium.

• Taxes can impact consumer behavior by affecting the price of goods and services, leading to changes in demand and consumption patterns. Market equilibrium can be affected as taxes can shift the supply and demand curves, leading to changes in the equilibrium price and quantity.

• Taxes only impact the price of luxury goods, not everyday items

• Taxes have no impact on consumer behavior or market equilibrium

• Market equilibrium is not affected by taxes

What are subsidies and how do they affect the supply and demand of goods?

• Subsidies are financial assistance given by the government to businesses or individuals to encourage production or consumption of certain goods. They can affect the supply and demand of goods by lowering the cost of production for businesses, leading to an increase in supply, and by making the goods more affordable for consumers, leading to an increase in demand.

• Subsidies are only given to individuals, not businesses, and have no effect on the production or consumption of goods.

• Subsidies are penalties imposed by the government on businesses to discourage production of certain goods.

• Subsidies have no impact on the supply and demand of goods.

How do price ceilings and price floors affect the market for goods and services?

• They can create shortages or surpluses in the market, leading to inefficiencies.

• They result in perfect equilibrium

• They have no impact on the market

• They lead to increased efficiency

When YED value is positive and the value is 0.5

• Normal and a necessity good

• Inferior and a necessity good

• Normal and a necessity good

• Normal and a luxury good

If a good has many close substitutes, the PED value for that good is likely to be  

• less than one

• equal to one

• greater than one

• zero