Q: Which formula is used to calculate the income elasticity of demand?

$$\frac{\text{Percentage change in quantity demanded}}{\text{Percentage change in income}}$$

Question 1

Which of the following best describes the price elasticity of demand?

Accepted Answer

It is a units-free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences remain the same.

Question 2

Given the following scenario: The price of a pizza falls from $$20.50 to 19.50$$, and the quantity demanded increases from 9 to 11 pizzas per hour. What is the price elasticity of demand at the midpoint?

Accepted Answer

$$\frac{20\%}{5\%} = 4$$

Question 3

If the percentage change in quantity demanded is smaller than the percentage change in price, the demand for the good is:

Accepted Answer

Inelastic

Question 4

Which factor does NOT influence the elasticity of demand for a good?

Accepted Answer

The cost of production

Question 5

A vertical demand curve represents which type of demand?

Accepted Answer

Perfectly inelastic demand

Question 6

If a 1 percent price cut increases the quantity sold by more than 1 percent, what happens to total revenue?

Accepted Answer

Total revenue increases

Question 7

Which formula is used to calculate the income elasticity of demand?

Accepted Answer

$$\frac{	ext{Percentage change in quantity demanded}}{	ext{Percentage change in income}}$$

Question 8

If the cross elasticity of demand between two goods is negative, what does this indicate?

Accepted Answer

The goods are complements

Question 9

Which of the following statements about elasticity along a linear demand curve is correct?

Accepted Answer

Elasticity decreases as price decreases.

Question 10

A good has an income elasticity of demand less than zero. What type of good is it?

Accepted Answer

Inferior good

Question 11

If the price elasticity of demand for a product is 0.5, what does this imply about the demand?

Accepted Answer

Demand is inelastic

Question 12

Which of the following is true about the total revenue test?

Accepted Answer

If a price cut leaves total revenue unchanged, demand is unit elastic.

Question 13

Suppose the price of burgers (a substitute for pizza) rises. What happens to the quantity demanded of pizza?

Accepted Answer

It increases

Question 14

Which of the following is NOT a factor that influences the elasticity of supply?

Accepted Answer

Closeness of substitutes

Question 15

If the supply curve is horizontal, what is the elasticity of supply?

Accepted Answer

Infinite

Question 16

A 1 percent price cut increases the quantity you buy by exactly 1 percent. What is your expenditure on the item?

Accepted Answer

It does not change

Question 17

Which of the following best explains why elasticity is a units-free measure?

Accepted Answer

It is a ratio of percentages, so changing the units of measurement does not affect its value.

Question 18

If the price of a good falls and the total revenue decreases, what can you conclude about the demand for the good?

Accepted Answer

Demand is inelastic

Question 19

Which time frame for supply decision is the most elastic?

Accepted Answer

Long-run supply

Question 20

If the percentage change in quantity supplied is equal to the percentage change in price, what is the elasticity of supply?

Accepted Answer

One

Elasticity in Microeconomics: Price, Income, and Supply Elasticities

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