Introductory quiz

1. Aanya, Aashi, and Asher are planning a fun day out. What does the Law of Demand state?

• a) When prices go up, people buy more.

• b) When prices go down, people buy more.

• c) Prices don’t affect how much people buy.

• d) The quantity supplied increases when prices increase.

2. If a store decides to throw a sale party for shirts, what do you think will happen to the quantity of shirts demanded?

• a) It will remain the same.

• b) It will decrease.

• c) It will increase.

• d) It will dance around randomly.

3. 3. What does the term "elasticity" refer to in economics?

• a) The measure of how much the quantity supplied of a good changes when the price changes.

• b) The measure of how much the quantity demanded of a good changes in response to a change in price.

• c) The ability of a firm to adjust its production levels quickly.

• d) The total revenue a firm makes from selling its products.

4. 4. How can Akhil use the concept of elasticity to win the ultimate price war?

• 4. a) By determining the exact cost of production.

• 4. b) By understanding how changes in price will affect total revenue.

• 4. c) By deciding the best location for his stores.

• 4. d) By gaining insights into competitors’ prices.

5. 5. Hey there, Krish, Ishika, and Alisha! Let's have some fun learning about elasticity of demand. What does it mean if demand is said to be "elastic"?

• 5. a) The quantity demanded does not change much with price changes.

• 5. b) The price of the good is constant regardless of demand.

• 5. c) The quantity demanded changes significantly with price changes.

• 5. d) The supply of the good is responsive to price changes.

6. 6. Hey there, future economists! Can you tell me what a subsidy is?

• 6. a) A tax on products

• 6. b) A price set by a company

• 6. c) A government payment to help reduce the cost of a product

• 6. d) A type of market competition

7. 7. Hey there! What is the ultimate aim of a company in a competitive market?

• a) To boost profits

• b) To minimize losses

• c) To innovate new products

• d) To establish high prices

8. Ananya is planning a party and wants to understand the impact of a subsidy on the market equilibrium. How does a subsidy affect the market equilibrium?

• a) It raises the price and decreases the quantity supplied.

• b) It lowers the price and increases the quantity supplied.

• c) It raises the price and increases the quantity demanded.

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• d) It lowers the price and increases the quantity demanded

10. 9. What does the Law of Supply state?

• 10. a) When prices go up, does the quantity supplied go down?

• 10. b) Do lower prices lead to more goods being supplied?

• 10. c) Does the quantity supplied increase as prices rise?

• 10. d) Does the quantity supplied stay the same no matter the price?

10. 10. Discuss the role of elasticity in understanding supply. How does the concept of elasticity help firms make production decisions?

Answer explanation

Elasticity of supply measures how responsive the quantity supplied of a good is to a change in its price. If supply is elastic, a small change in price leads to a large change in the quantity supplied. If supply is inelastic, the quantity supplied changes little with price changes. Understanding elasticity helps firms make production decisions by allowing them to anticipate how changes in market prices will affect their production levels and revenues. For instance, if a firm knows that its supply is highly elastic, it might be more willing to expand production quickly in response to rising prices. Conversely, if supply is inelastic, the firm might focus on optimizing current production rather than rapidly expanding capacity.