Rational decision making, demand and the elasticities of demand

What are the underlying assumptions of rational economic decision making?

• Consumers aim to maximise utility and firms aim to maximise profits.

• Consumers always act irrationally and firms seek to minimise profits.

• Consumers ignore prices and firms ignore costs.

• Consumers and firms make decisions randomly without any objectives.

What is the distinction between movements along a demand curve and shifts of a demand curve?

• Movements along a demand curve are caused by changes in price, while shifts of a demand curve are caused by changes in other factors (conditions of demand).

• Movements along a demand curve are caused by changes in income, while shifts are caused by changes in price.

• Movements along a demand curve are caused by advertising, while shifts are caused by changes in the quantity demanded.

• Movements along a demand curve are caused by changes in supply, while shifts are caused by changes in consumer preferences.

Name one factor that may cause a shift in the demand curve (the conditions of demand).

• Income, tastes and preferences, prices of related goods, expectations, number of buyers.

• The color of the product packaging.

• The day of the week the product is sold.

• The alphabetical order of the product name.

What is the concept of diminishing marginal utility and how does it influence the shape of the demand curve?

• Diminishing marginal utility means that as a person consumes more of a good, the additional satisfaction from each extra unit decreases, leading to a downward sloping demand curve.

• Diminishing marginal utility means that as a person consumes more of a good, the total satisfaction from each extra unit increases, leading to an upward sloping demand curve.

• Diminishing marginal utility means that as a person consumes more of a good, the additional satisfaction from each extra unit remains constant, leading to a horizontal demand curve.

• Diminishing marginal utility means that as a person consumes more of a good, the additional satisfaction from each extra unit increases, leading to a vertical demand curve.

What is price elasticity of demand?

• Price elasticity of demand measures how much the quantity demanded of a good responds to a change in its price.

• Price elasticity of demand measures the change in supply due to a change in consumer income.

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

• Price elasticity of demand measures how much the cost of production changes with output.

Which of the following is NOT a type of price elasticity of demand?

• Unitary elastic

• Perfectly elastic

• Perfectly inelastic

• Marginally elastic

What is income elasticity of demand?

• Income elasticity of demand measures how much the quantity demanded of a good responds to a change in consumers' income.

• Income elasticity of demand measures the change in supply due to a change in price.

• Income elasticity of demand measures the responsiveness of price to changes in demand.

• Income elasticity of demand measures the effect of advertising on demand.

What is cross elasticity of demand?

• Cross elasticity of demand measures how much the quantity demanded of one good responds to a change in the price of another good.

• Cross elasticity of demand measures the responsiveness of quantity supplied to a change in its own price.

• Cross elasticity of demand measures the total revenue generated from the sale of two goods.

• Cross elasticity of demand measures the change in consumer income on the demand for a good.

List one factor influencing elasticities of demand.

• Availability of substitutes, necessity vs luxury, proportion of income spent, time period.

• Weather conditions, advertising budget, number of suppliers, government spending.

• Production technology, labor union strength, tax collection efficiency, export quotas.

• Exchange rates, inflation rate, central bank reserves, stock market trends.

How does the imposition of indirect taxes and subsidies affect the elasticity of demand?

• It affects the price consumers pay and the quantity demanded, depending on the elasticity of demand for the good.

• It has no effect on the price or quantity demanded, regardless of elasticity.

• It only affects goods with perfectly inelastic demand.

• It always leads to a decrease in demand, regardless of the good's elasticity.