$$\frac{\%\ \text{change in quantity supplied}}{\%\ \text{change in price}}$$

Question 1

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

Accepted Answer

Elasticity measures the responsiveness of quantity demanded or supplied to one of its determinants, such as price or income.

Question 2

If the price of ice cream rises by 10% and the quantity demanded falls by 20%, what is the price elasticity of demand?

Accepted Answer

$$\frac{20\%}{10\%} = 2$$

Question 3

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

Accepted Answer

A brand of cereal with many close substitutes.

Question 4

Suppose the price of calculators increases by 15% and the quantity demanded per week falls by 45%. What is the price elasticity of demand?

Accepted Answer

$$\frac{45\%}{15\%} = 3$$

Question 5

Which determinant would make the demand for a product more elastic?

Accepted Answer

The product has many close substitutes.

Question 6

If the price elasticity of demand for a good is less than 1, the demand for that good is:

Accepted Answer

Inelastic

Question 7

Which of the following statements is TRUE regarding perfectly inelastic demand?

Accepted Answer

The demand curve is vertical and elasticity equals zero.

Question 8

A narrowly defined market, such as ice cream, tends to have:

Accepted Answer

More elastic demand than a broadly defined market.

Question 9

If the price of milk increases by 10% and the quantity supplied rises by 20%, what is the price elasticity of supply?

Accepted Answer

$$\frac{20\%}{10\%} = 2$$

Question 10

Which of the following supply curves represents perfectly elastic supply?

Accepted Answer

A horizontal supply curve.

Question 11

Which factor increases the elasticity of supply?

Accepted Answer

Greater flexibility of sellers.

Question 12

If the supply of beachfront property is fixed, the price elasticity of supply is likely to be:

Accepted Answer

Perfectly inelastic

Question 13

Which of the following is a correct formula for price elasticity of supply?

Accepted Answer

$$\frac{\%\ 	ext{change in quantity supplied}}{\%\ 	ext{change in price}}$$

Question 14

If the price elasticity of supply is greater than 1, supply is considered:

Accepted Answer

Elastic

Question 15

Which of the following statements is TRUE about the time horizon and elasticity?

Accepted Answer

Supply and demand tend to be more elastic in the long run.

Question 16

If the price elasticity of demand is exactly 1, the demand is:

Accepted Answer

Unit elastic

Question 17

Which of the following is a real-world example of a good with inelastic demand?

Accepted Answer

Insulin for diabetics

Question 18

If the demand curve is horizontal, what is the elasticity of demand?

Accepted Answer

Elasticity is infinite (perfectly elastic demand).

Question 19

A flatter supply curve generally indicates:

Accepted Answer

More elastic supply.

Question 20

If the price of knee braces increases by 25% and the quantity supplied increases by 75%, what is the price elasticity of supply?

Accepted Answer

$$\frac{75\%}{25\%} = 3$$

Elasticity of Demand and Supply: Microeconomics Study Notes

Study Guide - Practice Questions