Micro and Macro Economics Essentials

What is the law of demand?

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

• The law of demand suggests that demand remains constant regardless of price changes.

• The law of demand indicates that higher prices lead to higher quantity demanded.

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

How does a shift in supply affect equilibrium price?

• A decrease in supply always lowers the equilibrium price.

• An increase in supply always raises the equilibrium price.

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

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

Define market equilibrium.

• Market equilibrium is the point where demand exceeds supply.

• Market equilibrium occurs when there is a surplus of goods.

• Market equilibrium is the point where supply equals demand.

• Market equilibrium is when prices are set by the government.

What factors can cause a change in demand?

• Weather conditions

• Production costs

• Advertising strategies

• Factors that can cause a change in demand include consumer preferences, income levels, prices of related goods, population demographics, and consumer expectations.

Explain the concept of production costs.

• Production costs only include direct labor expenses.

• Production costs are irrelevant to the overall profitability of a business.

• Production costs are solely determined by the selling price of goods.

• Production costs are the total expenses associated with manufacturing goods or providing services, including direct and indirect costs.

What is the difference between fixed and variable costs?

• Variable costs are predictable; fixed costs are unpredictable.

• Fixed costs are constant; variable costs change with production levels.

• Fixed costs vary with production; variable costs remain constant.

• Fixed costs are always higher than variable costs.

How do externalities affect market outcomes?

• Externalities always lead to increased market efficiency.

• Externalities only affect public goods, not private markets.

• Externalities lead to market failures by causing inefficiencies in resource allocation.

• Externalities have no impact on resource allocation.

What happens when there is a surplus in the market?

• Prices increase as demand rises.

• Sellers hold prices steady regardless of inventory.

• Market equilibrium is achieved without any price changes.

• Prices tend to decrease as sellers lower prices to clear excess inventory.

Describe the role of consumer preferences in demand.

• Consumer preferences have no impact on demand.

• Consumer preferences only affect supply, not demand.

• Consumer preferences play a crucial role in shaping demand by influencing what products are desired and purchased.

• Consumer preferences are irrelevant to purchasing decisions.

What is the significance of the price elasticity of demand?

• The significance of price elasticity of demand lies in its ability to inform pricing strategies and predict consumer behavior in response to price changes.

• It measures the total revenue generated by a product.

• It indicates the fixed costs associated with production.

• It determines the market share of a company.