Exploring Economic Principles

What is the law of demand?

• The law of demand indicates that price and quantity demanded are inversely related.

• The law of demand states that price and quantity demanded are directly related.

• The law of demand indicates that quantity supplied increases as price decreases.

• The law of demand suggests that higher prices lead to higher demand.

How does a shift in supply affect equilibrium price?

• A shift in supply affects equilibrium price by decreasing it with an increase in supply and increasing it with a decrease in supply.

• A shift in supply has no effect on equilibrium price.

• An increase in supply always raises the equilibrium price.

• A decrease in supply leads to a constant equilibrium price.

What are the characteristics of perfect competition?

• High barriers to entry

• Few buyers and sellers

• Differentiated products

• Characteristics of perfect competition include many buyers and sellers, identical products, free market entry and exit, perfect information, and price takers.

Define monopolistic competition and its features.

• Monopolistic competition is a market structure with many firms selling differentiated products, featuring product differentiation, many sellers, free entry and exit, and some price control.

• A market with few firms selling identical products and high barriers to entry.

• A market structure with a single seller and no product differentiation.

• A market where firms have complete control over pricing and no competition exists.

What factors influence consumer purchasing decisions?

• Personal preferences, social influences, cultural background, economic conditions, marketing strategies, product quality, brand reputation.

• Product packaging design

• Celebrity endorsements

• Weather conditions

Explain the concept of price elasticity of demand.

• Price elasticity of demand is a measure of the responsiveness of quantity demanded to a change in price.

• Price elasticity of demand only applies to luxury items.

• Price elasticity of demand measures the total revenue of a product.

• Price elasticity of demand is the same for all goods regardless of their nature.

What are fixed and variable costs?

• Fixed costs are only incurred when production is at maximum capacity.

• Fixed costs vary with production levels, while variable costs remain constant.

• Both fixed and variable costs change with production levels.

• Fixed costs remain constant regardless of output, while variable costs change with production levels.

How do economies of scale impact production costs?

• Economies of scale only apply to small businesses and not large corporations.

• Economies of scale reduce production costs by spreading fixed costs over more units and increasing operational efficiencies.

• Economies of scale have no effect on production costs or efficiencies.

• Economies of scale increase production costs by requiring more resources.

What is the difference between short-term and long-term investments?

• Short-term investments are always riskier than long-term investments.

• Short-term investments are for quick returns and held for less than a year, while long-term investments are for growth and held for several years.

• Long-term investments are only in real estate and short-term in stocks.

• Short-term investments are held for more than a year while long-term are for less than a year.

Describe the role of diversification in investment strategies.

• Diversification reduces risk by spreading investments across different assets.

• Diversification increases risk by concentrating investments in one asset.

• Diversification guarantees higher returns on investments.

• Diversification is only necessary for large investment portfolios.