Question 1

Suppose the price of a product increases from $$3.00 to 5.00$$, and as a result, the quantity demanded decreases from 123,750 units to 116,250 units. Using the midpoint formula, what is the price elasticity of demand?

Accepted Answer

$$0.125$$

Question 2

Which of the following statements best describes a product with perfectly inelastic demand?

Accepted Answer

Quantity demanded does not change regardless of price changes.

Question 3

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

Accepted Answer

Total revenue increases.

Question 4

Which of the following factors would make the demand for a product more elastic?

Accepted Answer

The product has many close substitutes.

Question 5

A 10% increase in the price of a good leads to a 5% decrease in quantity demanded. What is the price elasticity of demand, and how would you classify the demand?

Accepted Answer

$$0.5$$, inelastic

Question 6

If the income elasticity of demand for a good is $$-0.3$$, what type of good is it?

Accepted Answer

Inferior good

Question 7

Which of the following best explains why the long-run price elasticity of demand is usually greater than the short-run elasticity?

Accepted Answer

Consumers have more time to find and switch to substitutes.

Question 8

If the cross-price elasticity of demand between goods X and Y is $$1.2$$, what does this imply about the relationship between X and Y?

Accepted Answer

They are substitutes.

Question 9

A government imposes an excise tax on gasoline. If the demand for gasoline is inelastic and the supply is elastic, who bears most of the tax burden?

Accepted Answer

Consumers

Question 10

Which formula correctly represents the price elasticity of supply?

Accepted Answer

$$\eta_s = \frac{\Delta Q / Q}{\Delta P / P}$$

Question 11

If a product has a price elasticity of demand equal to 1, what happens to total revenue if the price changes?

Accepted Answer

Total revenue remains unchanged.

Question 12

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

Accepted Answer

Insulin for diabetics

Question 13

If the price of good Y increases and the demand for good X decreases, what is the cross-price elasticity of demand between X and Y?

Accepted Answer

Negative

Question 14

A product’s supply curve is more elastic in the long run than in the short run because:

Accepted Answer

Producers can adjust their production capacity over time.

Question 15

Which of the following goods is most likely to have a positive but less than one income elasticity of demand?

Accepted Answer

Bread

Question 16

If a 15% increase in income leads to a 30% increase in the quantity demanded for a good, what is the income elasticity of demand and how is the good classified?

Accepted Answer

$$2.0$$, luxury good

Question 17

Which scenario best illustrates the concept of unit elastic demand?

Accepted Answer

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

Question 18

If the government wants to maximize tax revenue from an excise tax, it should target goods with which type of demand?

Accepted Answer

Inelastic demand

Question 19

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

Accepted Answer

The cost of production

Question 20

A 20% increase in the price of a product leads to a 10% increase in quantity supplied. What is the price elasticity of supply?

Accepted Answer

$$0.5$$

Elasticity in Microeconomics: Price, Supply, Income, and Cross Elasticities

Study Guide - Practice Questions

Study Guide - Flashcards