Question 1

Which of the following best describes the concept of elasticity in microeconomics?

Accepted Answer

Elasticity measures the percentage change in quantity demanded in response to a percentage change in a factor examined.

Question 2

Given the formula for price elasticity of demand $$	ext{Price Elasticity of Demand} = \frac{\% 	ext{Change in Quantity}}{\% 	ext{Change in Price}}$$, what does a value between 0 and -1 indicate?

Accepted Answer

Demand is inelastic.

Question 3

If the price elasticity of demand for a product is -2, what does this imply about consumer responsiveness?

Accepted Answer

A 1% increase in price leads to a 2% decrease in quantity demanded.

Question 4

Using the midpoint formula, calculate the price elasticity of demand if $$Q_1 = 100$, Q_2$ = 80$$, $$P_1 = 10$, and P_2$ = 12.$$

Accepted Answer

$$\frac{(80-100)}{(80+100)/2} \div \frac{(12-10)}{(12+10)/2} = \frac{-20}{90} \div \frac{2}{11} \approx -1.22$$

Question 5

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

Accepted Answer

The cost of production for suppliers

Question 6

If a firm increases the price of its product and total revenue decreases, what can be inferred about the price elasticity of demand?

Accepted Answer

Demand is elastic.

Question 7

A necessity good typically has which type of price elasticity of demand?

Accepted Answer

Inelastic

Question 8

If the price elasticity of demand is zero, what does this mean for consumer behavior?

Accepted Answer

Consumers will not change quantity demanded regardless of price changes.

Question 9

Which scenario best illustrates perfectly elastic demand?

Accepted Answer

Consumers will buy any quantity at or below a certain price, but none above it.

Question 10

If a product has many close substitutes, what can be said about its price elasticity of demand?

Accepted Answer

It is likely to be elastic.

Question 11

Suppose the price of a good increases by 10% and the quantity demanded decreases by 5%. What is the price elasticity of demand?

Accepted Answer

$$\frac{-5\%}{10\%} = -0.5$$

Question 12

Which of the following statements is true regarding the relationship between elasticity and total revenue?

Accepted Answer

If demand is unit elastic, changes in price do not affect total revenue.

Question 13

A luxury good is characterized by which type of income elasticity of demand?

Accepted Answer

Income elasticity greater than 1

Question 14

If the cross-price elasticity of demand between goods A and B is positive, what does this indicate?

Accepted Answer

Goods A and B are substitutes.

Question 15

Which formula correctly represents the midpoint (arc) method for calculating price elasticity of demand?

Accepted Answer

$$\frac{(Q_2$ - Q_1$)}{(Q_2$ + Q_1$)/2} \div \frac{(P_2$ - P_1$)}{(P_2$ + P_1$)/2}$$

Question 16

If the income elasticity of demand for a good is negative, what type of good is it?

Accepted Answer

Inferior good

Question 17

Which of the following would make the supply of a product more elastic?

Accepted Answer

Production can be easily increased in response to price changes.

Question 18

If the price elasticity of supply is greater than 1, what does this indicate?

Accepted Answer

Supply is elastic.

Question 19

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

Accepted Answer

Consumer preferences

Question 20

Suppose a firm faces a perfectly inelastic supply curve. What happens to quantity supplied when price increases?

Accepted Answer

Quantity supplied remains unchanged.

Unit 5: Elasticity – Price Elasticity of Demand

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