What is an inferior good?

A good where demand rises as income decreases

What is the substitution effect

Consumers replacing a costly item with a cheaper alternative

What causes movement along the demand curve?

A change in the price of the good itself

When two goods are complements, an increase in the price of one leads to:

A decrease in demand for the other good

What is the law of demand?

When prices rise, demand decreases

Elasticity of demand measures:

How responsive demand is to price changes

What is the formula for calculating price elasticity of demand?

% change in quantity demanded / % change in price

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Chapter 4 Review

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Questions 20

Answers

1
What is an inferior good?
A good where demand rises as income decreases
A good only consumed in developing countries
A good where demand increases with price
A good with declining quality over time
2
Which factor does NOT shift the demand curve?
Changes in consumer income
Changes in population
Changes in consumer preferences
Changes in the price of a good
3
Which of the following is NOT a determinant of demand?
Price of related goods
Consumer income
Number of suppliers
Consumer expectations
4
What is the substitution effect
Consumers replacing a costly item with a cheaper alternative
Consumers refusing to purchase substitute goods
Producers substituting materials for production
Consumers buying more expensive goods
5
If the price elasticity of demand is greater than 1, demand is:
Inelastic
Elastic
6
What is the result of an increase in the price of a good on quantity demanded?
Demand curve shifts to the left.
Quantity demanded decreases
Demand curve shifts to the right.
Quantity demanded increases
7
What causes movement along the demand curve?
A change in the price of related goods
A change in income
A change in consumer preferences
A change in the price of the good itself
8
When two goods are complements, an increase in the price of one leads to:
An increase in demand for both goods
Higher production of both goods
A decrease in demand for the other good
No change in demand
9
What happens to demand when consumer income increases for a normal good?
Demand remains the same
Demand increases.
Demand shifts downward
Demand decreases.
10
What happens to demand for inferior goods when income rises?
It increases.
It becomes perfectly elastic
It decreases
It remains constant
11
If demand is elastic, a price increase will:
Have no effect on revenue
Double revenue
Decrease total revenue
Increase total revenue
12
Which of the following best describes a demand curve?
A vertical line
A horizontal line
A downward-sloping line
An upward-sloping lined.
13
If the price of coffee increases, what happens to the demand for tea (a substitute)?
. It decreases
It becomes elastic
It stays the same
It increases
14
Which of the following is a normal good?
Generic-brand groceries
Discounted electronics
Used cars
Luxury watches
15
What is the law of demand?
When prices fall, demand decreases
Demand remains constant regardless of price
When prices rise, demand increases
When prices rise, demand decreases
16
Which of these goods is most likely to have elastic demand?
Water
Luxury handbags
Gasoline
Electricity
17
Elasticity of demand measures:
How quickly goods can be supplied
How much demand changes when income changes
How responsive demand is to price changes
The relationship between demand and production
18
Which of the following is an example of inelastic demand?
Prescription medication
Sports equipment
Movie tickets
Designer clothing
19
What is the formula for calculating price elasticity of demand?
Quantity demanded / Price
% change in price / % change in quantity demanded
Price x Quantity demanded
% change in quantity demanded / % change in price
20
A leftward shift of the demand curve indicates:
An increase in demand
An increase in quantity demanded
No change in demand
A decrease in demand

Chapter 4 Review Flashcards | StudBud