Question 1

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

Accepted Answer

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

Question 2

Given the midpoint formula for price elasticity of demand: $$E_d = \frac{(Q_2$ - Q_1$)}{(Q_2$ + Q_1$)/2} \div \frac{(P_2$ - P_1$)}{(P_2$ + P_1$)/2}$$, what is the price elasticity of demand if $$Q_1 = 10$, Q_2$ = 14$$, $$P_1 = 8$, and P_2$ = 6$$?

Accepted Answer

$$E_d = -1.5$$

Question 3

If the price elasticity of demand for a product is $$-0.3$$, how would you classify the demand for this product?

Accepted Answer

Inelastic

Question 4

Which of the following statements is TRUE regarding the sign of the price elasticity of demand?

Accepted Answer

It is always negative, but economists often use the absolute value.

Question 5

Suppose a 10% increase in the price of a good leads to a 20% decrease in quantity demanded. What is the price elasticity of demand, and how is the demand classified?

Accepted Answer

Elasticity is $$-2$$, and demand is elastic.

Question 6

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

Accepted Answer

There are many close substitutes available.

Question 7

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

Accepted Answer

Demand is elastic.

Question 8

A product has a price elasticity of demand of $$-1. If $$the firm increases the price, what happens to total revenue?

Accepted Answer

Total revenue remains unchanged.

Question 9

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

Accepted Answer

The cost of production for the firm

Question 10

If the demand for a product is perfectly inelastic, what will happen to the quantity demanded if the price increases?

Accepted Answer

Quantity demanded will remain unchanged.

Question 11

A luxury good is defined as a good for which the income elasticity of demand is:

Accepted Answer

Greater than one

Question 12

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

Accepted Answer

Goods A and B are substitutes.

Question 13

Suppose the price of good B increases and the quantity demanded of good A decreases. What is the sign of the cross-price elasticity of demand between A and B?

Accepted Answer

Negative

Question 14

Which formula is used to calculate the income elasticity of demand using the midpoint method?

Accepted Answer

$$E_I = \frac{(Q_2$ - Q_1$)}{(Q_2$ + Q_1$)/2} \div \frac{(I_2$ - I_1$)}{(I_2$ + I_1$)/2}$$

Question 15

If a good has an income elasticity of demand less than zero, what type of good is it?

Accepted Answer

Inferior good

Question 16

Which of the following scenarios would likely result in a more elastic supply for a product?

Accepted Answer

Firms have a long time to adjust production and inputs are easy to obtain.

Question 17

The price elasticity of supply is always:

Accepted Answer

Positive

Question 18

If the percentage change in quantity supplied is less than the percentage change in price, supply is:

Accepted Answer

Inelastic

Question 19

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

Accepted Answer

Consumer preferences

Question 20

A firm faces a perfectly elastic demand curve. What happens to the quantity demanded if the firm raises its price above the market price?

Accepted Answer

Quantity demanded falls to zero.

Unit 5: Elasticity – Price Elasticity of Demand (Microeconomics Study Notes)

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