Income elasticity of demand

sensitivity of quantity demanded to income=(∆Q/Q)/(∆I/I)

In microeconomics, we define a "market" as

When buyers and sellers meet + determine the price of goods

The price elasticity of demand

Sensitivity of quantity demanded to price =(∆Q/Q)/(∆P/P)

Prices in a competitive market are

Determined by interactions of buyers and sellers in a market

In microeconomics, the equilibrium price is defined as the price at which

market clearing price => Q demanded = Q supplied

The market demand curve slopes downward because

lower P => higher Q demanded, as consumers buy more

The study of microeconomics includes the study of

firms + consumers interact and make decisions in the market.

The market supply curve

Slopes upward =>higher price, firms are willing to sell more

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Microeconomics First test

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Simple test in basic micro economics

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Answers

1
Income elasticity of demand
sensitivity of quantity demanded to income=(∆Q/Q)/(∆I/I)
sensitivity of quantity demanded to income=(∆I/I)/(∆Q/Q)
sensitivity of price to income=(∆P/P)/(∆I/I)
sensitivity of income to quantity demanded= (∆I/I)/(∆Q/Q)
2
In microeconomics, we define a "market" as
Stores or markets where goods are physically exchanged.
When buyers and sellers meet + determine the price of goods
Firms that sell the same or closely related products
Organized exchange where trades are conducted and recorded
3
The price elasticity of demand
Sensitivity of quantity demanded to pricen=(∆P/P)/(∆Q/Q)
Sensitivity of price to income = (∆P/P)/(∆I/I)
Sensitivity of price to quantity demanded=(∆P/P)/(∆Q/Q)
Sensitivity of quantity demanded to price =(∆Q/Q)/(∆P/P)
4
Prices in a competitive market are
Set by government to ensure a minimum profit for firms
Set by consumers and are not influenced by cost of goods
Set by firms based on input costs
Determined by interactions of buyers and sellers in a market
5
In microeconomics, the equilibrium price is defined as the price at which
Firms sell most of the quantity they produce at that price.
market clearing price => Q demanded = Q supplied
Firms selling at profit => no surplus of goods unsold.
Production costs are at a minimum.
6
The market demand curve slopes downward because
Both 1 and 2.
lower P =>lower Q demanded of a good=>perceived value falls
higher P=>higher Q demanded of good=>perceived value rise
lower P => higher Q demanded, as consumers buy more
7
The study of microeconomics includes the study of
Output, employment growth and price level in the market
number of new jobs and income in a growing economy
firms + consumers interact and make decisions in the market.
Business investment and gov. spending in the marketplace.
8
When the quantity demanded is very sensitive to changes in price,
(∆Q/Q) > (∆P/P) and demand is price elastic.
Price elasticity > 1 and demand is price elastic.
Both 1 and 3.
(∆Q/Q) > (∆P/P) and demand is price inelastic.
9
The market supply curve
Slopes downward, ==> higher Q of goods produced = lower cost
Slopes downward, ==> firms sell more goods as prices fall
Slopes upward =>higher price, firms are willing to sell more
upward or downward, depending upon price set by firms'

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