What is the difference between elastic and inelastic demand? Use examples to explain your answer
Demand for a good is considered elastic when its quantity demanded is highly sensitive to changes in price. If the percentage change in quantity demanded is larger than the percentage change in price, consumers are very price sensitive and demand is elastic. For example, the price elasticity of demand for a luxury car is highly elastic.
Demand for a good is considered inelastic when its quantity demanded is not very sensitive to changes in price. If the percentage change in quantity demanded is smaller than the percentage change in price, consumers are not very price sensitive and demand is inelastic. For example, the price elasticity of demand for table salt is inelastic.
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A local newspaper headline states "Congress Votes Against President's Proposed Tax Increase." An economist would interpret the statement as
A) a sad event, because all economists favor tax cuts. B) uninteresting, because all economists favor theories instead of reality. C) a purely political issue not related to economics. D) a shorthand way of saying, "More individuals in Congress voted against the tax cut compared to the number of individuals who voted in favor of the tax cut."
Energy drinks and granola bars are normal goods. When the price of energy drinks decreases, the income effect causes
a. the consumer to feel richer, so the consumer buys more granola bars. b. the consumer to feel richer, so the consumer buys fewer granola bars. c. granola bars to be relatively more expensive, so the consumer buys more granola bars. d. granola bars to be relatively less expensive, so the consumer buys fewer granola bars.
Which of the following individuals received a Nobel Prize in economics for his work in behavioral economics?
A. Daniel Kahneman. B. Richard Thaler. C. John Wannamaker. D. Richard Easterlin.
Which of the following does competition provide in a market economy?
a. centralized decision-making b. planning committees setting output quotas c. a regulator for the free market system d. government price controls