#1
What does the price elasticity of demand measure?
The percentage change in quantity demanded divided by the percentage change in price
ExplanationMeasure of responsiveness of quantity demanded to changes in price
#2
What type of goods have a price elasticity of demand greater than 1?
Elastic goods
ExplanationGoods with demand highly responsive to price changes
#3
When the percentage change in quantity supplied is less than the percentage change in price, what type of supply exists?
Inelastic supply
ExplanationSupply with low responsiveness to price changes
#4
What does the income elasticity of demand measure?
The percentage change in quantity demanded divided by the percentage change in income
ExplanationMeasure of responsiveness of demand to changes in income
#5
In which scenario would the cross-price elasticity of demand be positive?
When two goods are substitutes
ExplanationGoods that can be substituted for each other show positive cross-price elasticity
#6
What is the formula for price elasticity of supply?
(Percentage change in quantity supplied / Percentage change in price)
ExplanationMeasure of responsiveness of quantity supplied to changes in price
#7
Which of the following goods is most likely to have an inelastic demand?
Gasoline
ExplanationGoods with limited substitutes and necessities typically have inelastic demand
#8
Which of the following factors is likely to cause a decrease in the price elasticity of demand for a good?
An increase in the necessity of the good
ExplanationGoods becoming more necessary tend to have less elastic demand
#9
If the price of a good increases by 10% and the quantity demanded decreases by 20%, what is the price elasticity of demand?
2.0
ExplanationDemand: proportionate decrease in quantity demanded to increase in price
#10
What is the relationship between price elasticity of demand and total revenue when demand is inelastic?
As price elasticity of demand decreases, total revenue increases
ExplanationFor inelastic demand, price increase leads to a more than proportionate increase in total revenue
#11
Which of the following goods is likely to have a perfectly inelastic demand?
Bottled water during a severe drought
ExplanationGoods with no substitutes and considered necessities typically have perfectly inelastic demand
#12
What is the formula for income elasticity of demand?
(Percentage change in quantity demanded / Percentage change in income)
ExplanationMeasure of responsiveness of demand to changes in income
#13
If the price elasticity of demand for a good is -2, what does this indicate?
Demand is elastic
ExplanationDemand: more than proportionate decrease in quantity demanded to increase in price
#14
Which of the following factors influences the price elasticity of supply?
All of the above
ExplanationVarious factors including production time, availability of substitutes, and mobility of factors of production affect supply elasticity
#15
Which of the following factors does NOT affect the price elasticity of demand?
Government regulations
ExplanationExternal regulatory influences not impacting demand elasticity
#16
What does a perfectly elastic supply curve look like?
A horizontal line
ExplanationSupply infinitely responsive to price changes
#17
What is the formula for calculating cross-price elasticity of demand?
(Percentage change in price of Good A / Percentage change in quantity demanded of Good A) * (Percentage change in quantity demanded of Good B / Percentage change in price of Good B)
ExplanationMeasure of responsiveness of demand for Good A to price changes in Good B
#18
Which of the following statements about perfectly inelastic demand is true?
The demand curve is vertical
ExplanationDemand unaffected by price changes, represented by a vertical demand curve
#19
What happens to total revenue when demand is elastic and price increases?
Total revenue decreases
ExplanationFor elastic demand, decrease in quantity demanded outweighs price increase, leading to lower total revenue
#20
Which of the following scenarios would result in a perfectly elastic demand?
When the price changes have no effect on quantity demanded
ExplanationDemand shows infinite responsiveness to price changes, represented by a horizontal demand curve
#21
Which of the following is a characteristic of perfectly elastic demand?
The demand curve is horizontal
ExplanationDemand infinitely responsive to price changes, represented by a horizontal demand curve
#22
Which of the following scenarios would result in a perfectly inelastic supply?
When the supply curve is horizontal
ExplanationSupply unaffected by price changes, represented by a horizontal supply curve
#23
What is the key determinant of the price elasticity of supply?
The ability of producers to respond to price changes
ExplanationProducers' responsiveness to price changes influences supply elasticity
#24
What does a price elasticity of supply equal to zero signify?
Supply is perfectly inelastic
ExplanationSupply completely unresponsive to price changes