Question 1

Which of the following best describes the concept of price elasticity of demand (Ped)?

Accepted Answer

The responsiveness of quantity demanded to a change in the product’s own price.

Question 2

If the price of a good increases by 10% and the quantity demanded decreases by 20%, what is the price elasticity of demand? Use the formula $$Ped = \frac{\%\,\Delta Q_d}{\%\,\Delta P}.$$

Accepted Answer

$$Ped = -2$$

Question 3

A product has a price elasticity of demand of $$-0.3. $$Which of the following statements is true?

Accepted Answer

Demand is inelastic; a price increase will increase total revenue.

Question 4

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

Accepted Answer

Instant noodles (inferior good)

Question 5

If the cross-price elasticity of demand between tea and coffee is $$+0.8$$, what does this imply?

Accepted Answer

Tea and coffee are substitute goods.

Question 6

A firm notices that when it raises the price of its product, total revenue increases. What can be inferred about the price elasticity of demand for this product?

Accepted Answer

Demand is inelastic ($$|Ped| \u003c 1).$$

Question 7

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

Accepted Answer

The availability of many close substitutes.

Question 8

Suppose the income elasticity of demand for gym memberships is $$1.5. $$What type of good is gym membership, and what does this imply?

Accepted Answer

Luxury good; demand increases more than proportionally as income rises.

Question 9

If the price elasticity of supply (Pes) for strawberries is $$0.2 in $$the short run, what does this indicate?

Accepted Answer

Supply is inelastic; quantity supplied responds little to price changes.

Question 10

Which of the following scenarios best illustrates a perfectly inelastic supply curve?

Accepted Answer

A concert venue with a fixed number of seats, regardless of ticket price.

Question 11

A government wants to increase tax revenue from cigarettes. Which condition must hold for this policy to be effective?

Accepted Answer

Demand for cigarettes must be price inelastic.

Question 12

If the price of petrol increases and the demand for cars decreases, what is the cross-price elasticity of demand between cars and petrol?

Accepted Answer

Negative, indicating they are complementary goods.

Question 13

Which of the following is true about unitary elasticity of demand?

Accepted Answer

A change in price leads to a proportional change in quantity demanded, so total revenue remains unchanged.

Question 14

Which of the following goods is most likely to have a perfectly elastic demand curve?

Accepted Answer

A commodity sold in a perfectly competitive market.

Question 15

If a 5% increase in income leads to a 10% decrease in the quantity demanded for a good, what is the income elasticity of demand (Yed)?

Accepted Answer

$$Yed = -2$$

Question 16

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

Accepted Answer

Consumer income levels.

Question 17

A firm is considering raising the price of its product. Under which condition will this lead to an increase in total profit, assuming costs fall as output falls?

Accepted Answer

Demand is inelastic.

Question 18

Which of the following best explains why the demand for salt is likely to be price inelastic?

Accepted Answer

Salt takes up a very small proportion of consumers’ income.

Question 19

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

Accepted Answer

The goods are unrelated.

Question 20

Which of the following statements about the relationship between elasticity and total revenue is correct?

Accepted Answer

If demand is elastic, a decrease in price will increase total revenue.

Elasticity in Microeconomics: Types, Measurement, and Applications

Study Guide - Practice Questions

Study Guide - Flashcards