Economics Principles in Action Chapter 4

What is the law of supply and demand?

• The law of supply and demand is the interaction of supply and demand that determines the price of a good or service in a market.

• The law of supply and demand is the interaction of demand and supply that determines the price of a good or service in a market.

Explain the concept of equilibrium price.

• The equilibrium price is the price at which the quantity demanded by consumers is less than the quantity supplied by producers in a market.

• The equilibrium price is the price at which the quantity demanded by consumers equals the quantity supplied by producers in a market.

What factors can cause a shift in the supply curve?

• Changes in input prices, changes in demand, changes in the number of buyers, changes in expectations, and changes in government policies

• Changes in input prices, changes in technology, changes in the number of sellers, changes in expectations, and changes in government policies

Define price elasticity of demand.

• Price elasticity of demand is a measure of the responsiveness of the quantity demanded of a good or service to a change in its quality.

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

How is price elasticity of demand calculated?

• Percentage change in price divided by percentage change in quantity demanded

• Percentage change in quantity demanded divided by percentage change in price

What does it mean if the price elasticity of demand is greater than 1?

• The price of the product is too high.

• The demand for the product is elastic.

What are some examples of goods with elastic demand?

• Necessities, essential goods, goods with no substitutes

• Luxury items, non-essential goods, goods with close substitutes

What are some examples of goods with inelastic demand?

• food, medicine, gasoline

• books, toys, jewelry

Explain the concept of cross-price elasticity of demand.

• Cross-price elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good.

• Cross-price elasticity of demand measures the responsiveness of the quantity supplied of one good to a change in the price of another good.

How is cross-price elasticity of demand calculated?

• By adding the percentage change in quantity demanded of one good to the percentage change in price of another good.

• By dividing the percentage change in quantity demanded of one good by the percentage change in price of another good.