#1
What is elasticity of demand?
The responsiveness of quantity demanded to changes in price
ExplanationElasticity of demand measures how quantity demanded changes in response to price variations.
#2
Which of the following products is likely to have a more elastic demand?
Luxury cars
ExplanationLuxury cars tend to have more elastic demand as they are more sensitive to price changes compared to necessities.
#3
What is the formula to calculate price elasticity of demand?
ΔQ/Q ÷ ΔP/P
ExplanationPrice elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price.
#4
If the price elasticity of demand for a good is -2.5, what does this indicate?
Demand is elastic
ExplanationA price elasticity of demand of -2.5 indicates that demand is elastic, meaning quantity demanded changes significantly in response to price changes.
#5
What does a price elasticity of 1 indicate?
Unit elastic demand
ExplanationA price elasticity of 1 indicates unit elastic demand, where the percentage change in quantity demanded equals the percentage change in price.
#6
Which of the following is NOT a determinant of supply elasticity?
Availability of substitutes
ExplanationThe availability of substitutes is not a determinant of supply elasticity; it primarily affects demand elasticity.
#7
If the cross-price elasticity of demand between two goods is positive, what does it indicate about their relationship?
They are substitutes
ExplanationA positive cross-price elasticity indicates that the two goods are substitutes, as an increase in the price of one leads to an increase in demand for the other.
#8
Which of the following factors does NOT affect the elasticity of demand?
Price of complementary goods
ExplanationThe price of complementary goods does not directly affect the elasticity of demand.
#9
What happens to total revenue when demand is price inelastic and price increases?
Total revenue increases
ExplanationWhen demand is price inelastic, an increase in price leads to a proportionally smaller decrease in quantity demanded, resulting in an increase in total revenue.
#10
What is the main implication of perfectly elastic demand for a firm?
The firm has to sell at the market price
ExplanationWith perfectly elastic demand, the firm can only sell at the existing market price, as any increase in price would result in zero sales.
#11
If the price elasticity of demand for a good is greater than 1, what can you infer about the demand?
Demand is elastic
ExplanationA price elasticity of demand greater than 1 indicates elastic demand, where quantity demanded changes proportionately more than changes in price.
#12
What is the relationship between price elasticity of demand and total revenue when demand is elastic?
Total revenue decreases with price
ExplanationWhen demand is elastic, a decrease in price leads to a proportionally larger increase in quantity demanded, resulting in a decrease in total revenue.