Question 1

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

Accepted Answer

Elasticity measures the responsiveness of one variable to changes in another variable.

Question 2

If the price of a product increases by 10% and the quantity demanded decreases by 2%, what is the price elasticity of demand? Use the formula $$ PE_d = \frac{\%\ 	ext{Change in Quantity Demanded}}{\%\ 	ext{Change in Price}} .$$

Accepted Answer

$$ PE_d = \frac{-2\%}{10\%} = -0.2 $$

Question 3

A good is considered inelastic if its price elasticity of demand is:

Accepted Answer

Less than 1

Question 4

Julie used to buy 10 boxes of envelopes at $$3 each. When the price increased to 3.75$$, she bought 8 boxes. What is the price elasticity of demand for envelopes? Use $$ PE_d = \frac{\%\ 	ext{Change in Quantity Demanded}}{\%\ 	ext{Change in Price}} .$$

Accepted Answer

$$ PE_d = \frac{-20\%}{25\%} = -0.8 $$

Question 5

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

Accepted Answer

Salt

Question 6

If a 1% increase in price leads to a 1% decrease in quantity demanded, the demand is:

Accepted Answer

Unit elastic

Question 7

Suppose your income increases by 20% and your consumption of organic vegetables increases by 5%. What is the income elasticity of demand for organic vegetables? Use $$ IE_d = \frac{\%\ 	ext{Change in Quantity Demanded}}{\%\ 	ext{Change in Income}} .$$

Accepted Answer

$$ IE_d = \frac{5\%}{20\%} = 0.25 $$

Question 8

If the income elasticity of demand for a good is negative, the good is:

Accepted Answer

An inferior good

Question 9

The cross-price elasticity of demand between two goods is calculated as $$ XED = \frac{\%\ 	ext{Change in Quantity Demanded of Good Y}}{\%\ 	ext{Change in Price of Good X}} . If $$the price of cheese increases by 20% and the quantity demanded of sausage decreases by 40%, what is the cross-price elasticity?

Accepted Answer

$$ XED = \frac{-40\%}{20\%} = -2 $$

Question 10

If the cross-price elasticity of demand between two goods is positive, the goods are:

Accepted Answer

Substitutes

Question 11

Which of the following statements is true about perfectly elastic demand?

Accepted Answer

Any change in price leads to an infinite change in quantity demanded.

Question 12

A 10% increase in the price of a good leads to a 15% decrease in quantity demanded. What is the price elasticity of demand, and is demand elastic or inelastic?

Accepted Answer

$$ PE_d = \frac{-15\%}{10\%} = -1.5 $$, elastic

Question 13

If the income elasticity of demand for vacations abroad is 2.0, what does this imply?

Accepted Answer

Vacations abroad are normal goods and a luxury.

Question 14

Which of the following is an example of a good with zero income elasticity of demand?

Accepted Answer

Electricity

Question 15

Suppose the price of coffee increases from $$5 to 8 $$and you reduce your consumption from 4 cups to 2 cups per week. What is the price elasticity of demand? Use $$ PE_d = \frac{\%\ 	ext{Change in Quantity Demanded}}{\%\ 	ext{Change in Price}} .$$

Accepted Answer

$$ PE_d = \frac{-50\%}{60\%} = -0.83 $$

Question 16

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

Accepted Answer

The goods are unrelated.

Question 17

A 20% increase in income leads to a 10% decrease in demand for instant noodles. What is the income elasticity of demand, and what type of good is instant noodles?

Accepted Answer

$$ IE_d = \frac{-10\%}{20\%} = -0.5 $$, inferior good

Question 18

Which of the following scenarios best illustrates the concept of elastic demand?

Accepted Answer

A 10% increase in price leads to a 15% decrease in quantity demanded.

Question 19

If the price elasticity of supply is calculated as $$ PES = \frac{\%\ 	ext{Change in Quantity Supplied}}{\%\ 	ext{Change in Price}} $$, what does a value of $$ PES = 0 $$ indicate?

Accepted Answer

Supply is perfectly inelastic.

Elasticity in Economics: Concepts, Types, and Applications

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