#1
What does elasticity measure in economics?
The responsiveness of quantity demanded to changes in price
ExplanationElasticity in economics measures how quantity demanded responds to changes in price.
#2
Which of the following goods is likely to have the most elastic demand?
Luxury cars
ExplanationLuxury cars are likely to have the most elastic demand as consumers can easily substitute them with other goods.
#3
Which of the following factors affects the price elasticity of demand?
All of the above
ExplanationFactors such as availability of substitutes, necessity, and time horizon all influence the price elasticity of demand.
#4
What does a negative income elasticity of demand indicate?
The good is an inferior good
ExplanationA negative income elasticity indicates an inferior good, where demand decreases as consumer income increases.
#5
Which of the following factors does NOT influence the price elasticity of demand?
The production costs of the good
ExplanationProduction costs do not directly influence the price elasticity of demand; factors such as substitutes, necessity, and time horizon do.
#6
What is the formula for calculating price elasticity of demand?
(Change in Price) / (Change in Quantity Demanded)
ExplanationPrice elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price.
#7
If the price elasticity of demand for a good is -2, what does it indicate?
Demand is relatively elastic
ExplanationA price elasticity of -2 indicates relatively elastic demand, meaning that quantity demanded is responsive to changes in price.
#8
If the cross-price elasticity between two goods is -1, what kind of goods are they?
Perfect substitutes
ExplanationA cross-price elasticity of -1 implies that the goods are perfect substitutes, as a negative value indicates they move in opposite directions.
#9
How does elasticity affect the incidence of a tax?
Inelastic demand shifts the tax burden more to consumers
ExplanationInelastic demand results in a greater burden on consumers in the form of taxes, as they are less responsive to price changes.
#10
What is the formula for calculating income elasticity of demand?
(Change in Quantity Demanded) / (Change in Income)
ExplanationIncome elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income.
#11
What does a cross-price elasticity of 0.5 between two goods imply?
The goods are complements
ExplanationA cross-price elasticity of 0.5 indicates that the goods are complements, as a positive value implies they move in the same direction.
#12
What does the concept of elasticity of supply measure?
The responsiveness of quantity supplied to changes in price
ExplanationElasticity of supply measures how quantity supplied responds to changes in price.
#13
How does the elasticity of supply influence the incidence of a subsidy?
Elastic supply reduces the subsidy burden on producers
ExplanationElastic supply results in a reduced subsidy burden on producers, as they can increase quantity supplied more responsively to changes in price.
#14
What does a cross-price elasticity of -0.2 between two goods imply?
The goods are complements
ExplanationA cross-price elasticity of -0.2 indicates that the goods are complements, as a negative value implies they move in opposite directions.
#15
If the price elasticity of demand is -1.5, by what percentage will quantity demanded change if price increases by 10%?
15%
ExplanationThe percentage change in quantity demanded is equal to the price elasticity of demand multiplied by the percentage change in price, resulting in a 15% decrease.