Exam code: 0455 & 0987
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Define the law of demand.
The law of demand states that when the price of a good rises, the quantity demanded falls, and when the price falls, the quantity demanded rises.
True or False?
If competitors keep prices low, a firm that raises its prices may lose market share.
True.
If a firm increases its prices while competitors do not, consumers may switch to cheaper alternatives, reducing the firm's market share.
Define price elasticity of demand (PED).
Price Elasticity of Demand (PED) measures how much the quantity demanded of a product changes in response to a change in its price.
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Define the law of demand.
The law of demand states that when the price of a good rises, the quantity demanded falls, and when the price falls, the quantity demanded rises.
True or False?
If competitors keep prices low, a firm that raises its prices may lose market share.
True.
If a firm increases its prices while competitors do not, consumers may switch to cheaper alternatives, reducing the firm's market share.
Define price elasticity of demand (PED).
Price Elasticity of Demand (PED) measures how much the quantity demanded of a product changes in response to a change in its price.
What happens to sales if demand for a product is elastic and the price falls?
If demand is elastic, a fall in price causes a large increase in sales.
How does rising inflation affect the demand for luxury goods like lobsters?
Rising inflation reduces consumers' real income, so they buy fewer luxuries like lobsters, decreasing demand.
What market effect occurs when demand increases unexpectedly, as with furniture during lockdowns?
An unexpected increase in demand creates excess demand at the original price, leading suppliers to raise prices until a new equilibrium is reached.
What is a dynamic market?
A dynamic market is a real-world market in which conditions constantly change, causing frequent changes in market equilibrium.
True or False?
A supply shock that reduces supply will cause the equilibrium price to fall.
False.
A supply shock that reduces supply will cause the equilibrium price to rise, not fall.