Question 1

Suppose Jio reduces the price of its monthly data pack from ₹200 to ₹150, and as a result, the demand increases from 10 million to 14 million users. Using the arc elasticity formula, what is the price elasticity of demand?

Accepted Answer

$$\frac{(14-10)}{(14+10)/2} \div \frac{(150-200)}{(150+200)/2} = \frac{4}{12} \div \frac{-50}{175} = 0.333 \div -0.286 = -1.16$$

Question 2

If the price elasticity of demand for a product is $$E_d = 0.5$$, which of the following statements is correct?

Accepted Answer

A 10% increase in price will lead to a 5% decrease in quantity demanded.

Question 3

Which of the following goods is most likely to have perfectly inelastic demand?

Accepted Answer

A life-saving medicine with no substitutes

Question 4

Given the demand curve $$Q_d = 8 - 2P$$, what is the price elasticity of demand at $$P = 2$$?

Accepted Answer

$$E_p = -2 \left(\frac{2}{4}\right) = -1$$

Question 5

If the cross-price elasticity of demand between Uber and Ola is $$+0.625$$, what does this imply?

Accepted Answer

Uber and Ola are substitute goods.

Question 6

If the price elasticity of gasoline supply in the U.S. is $$0.4$$, and the price rises by $$8\%$$, what is the expected change in the quantity supplied?

Accepted Answer

+3.2\%

Question 7

Which of the following is NOT a determinant of price elasticity of demand?

Accepted Answer

Production technology

Question 8

Suppose the demand for a good is given by $$Q = 10 - 2P + P_s$$, where $$P is $$the price of the good and $$P_s is $$the price of a substitute. If $$P = 2$$ and $$P_s = 2$$, what is the cross-price elasticity of demand?

Accepted Answer

$$E_{ps} = \frac{P_s}{Q} \frac{\Delta Q}{\Delta P_s} = \frac{2}{8} 	imes 1 = 0.25$$

Question 9

Which scenario best illustrates a price floor?

Accepted Answer

The government sets a minimum support price for wheat above the equilibrium price.

Question 10

If the income elasticity of demand for luxury cars is $$2.5$$, what happens to the quantity demanded if consumer incomes rise by $$10\%$$?

Accepted Answer

Quantity demanded increases by $$25\%$$

Question 11

Which of the following best explains why the demand for petrol is inelastic?

Accepted Answer

There are few substitutes and it is essential for commuting.

Question 12

If the government imposes a price ceiling below the equilibrium price, what is the likely market outcome?

Accepted Answer

A shortage will develop as quantity demanded exceeds quantity supplied.

Question 13

Which of the following goods is most likely to have a negative income elasticity of demand?

Accepted Answer

Local bus rides

Question 14

If the cross-price elasticity of demand for bread with respect to the price of jam is $$-0.3$$, and the price of jam falls by $$15\%$$, what is the expected change in the quantity demanded for bread?

Accepted Answer

+4.5\%

Question 15

Which of the following statements about long-run and short-run elasticities is correct?

Accepted Answer

Demand for gasoline is more elastic in the long run than in the short run.

Question 16

Given the supply curve $$Q_s = 1800 + 240P$$ and the demand curve $$Q_d = 3550 - 266P$$, what is the equilibrium price?

Accepted Answer

$$P = \frac{1750}{506} = 3.46$$

Question 17

If the price elasticity of demand for a product is $$E_d = \infty$$, what does the demand curve look like?

Accepted Answer

A horizontal line

Question 18

Which of the following is an example of a price ceiling?

Accepted Answer

Government-imposed maximum rent on apartments

Question 19

If the demand for a product is unitary elastic, what happens to total revenue when the price changes?

Accepted Answer

Total revenue remains unchanged.

Elasticity of Demand and Supply: Microeconomics Study Notes

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