#1
Which of the following is true about price elasticity of demand?
It measures the responsiveness of quantity demanded to a change in price.
ExplanationPrice elasticity of demand measures responsiveness to price change.
#2
What does a price elasticity of demand of 0.5 indicate?
Demand is inelastic.
ExplanationPrice elasticity of demand of 0.5 indicates inelastic demand.
#3
Which of the following is a measure of price elasticity of demand?
Percentage change in quantity demanded divided by percentage change in price
ExplanationPrice elasticity of demand is measured by percentage change in quantity demanded divided by percentage change in price.
#4
If the price elasticity of demand for a good is greater than 1, it means that the demand is:
Elastic
ExplanationPrice elasticity of demand greater than 1 indicates elastic demand.
#5
If the cross-price elasticity between two goods is negative, what does it indicate?
The goods are complements.
ExplanationNegative cross-price elasticity indicates complementary goods.
#6
What is the formula for calculating price elasticity of demand using the midpoint method?
((Q2 - Q1) / (Q1 + Q2)) / ((P2 - P1) / (P1 + P2))
ExplanationMidpoint method formula for price elasticity: ((Q2 - Q1) / (Q1 + Q2)) / ((P2 - P1) / (P1 + P2))
#7
If a 10% increase in the price of a good leads to a 5% decrease in quantity demanded, what is the price elasticity of demand?
0.5
ExplanationPrice elasticity of demand of 0.5 indicates relatively inelastic demand.
#8
Cross-price elasticity measures the responsiveness of the quantity demanded of one good to a change in the price of another good. If the cross-price elasticity is negative, it indicates that the goods are:
Complements
ExplanationNegative cross-price elasticity indicates complementary goods.
#9
The total revenue test is used to determine the price elasticity of demand. If a price increase leads to an increase in total revenue, demand is:
Inelastic
ExplanationPrice increase leading to increased total revenue indicates inelastic demand.
#10
Which of the following is NOT a determinant of price elasticity of demand?
Price of the good itself
ExplanationPrice of the good itself is not a determinant of price elasticity of demand.
#11
Under what circumstances would a good have a perfectly elastic demand?
When consumers are willing to buy any quantity at a given price.
ExplanationPerfectly elastic demand occurs when consumers buy any quantity at a given price.
#12
Which of the following goods is most likely to have an elastic demand?
Diamonds
ExplanationGoods like diamonds are likely to have elastic demand.
#13
The midpoint formula for calculating price elasticity of demand is used because it:
Provides a more accurate measure regardless of the direction of change
ExplanationMidpoint formula provides accuracy irrespective of the direction of change.
#14
If a good has perfectly elastic demand, what can be said about the price elasticity of demand?
It is infinite
ExplanationPerfectly elastic demand implies infinite price elasticity of demand.
#15
When calculating the price elasticity of demand using the midpoint formula, the formula is expressed as:
((Q2 - Q1) / (Q1 + Q2)) / ((P2 - P1) / (P1 + P2))
ExplanationThe midpoint formula for price elasticity calculation is ((Q2 - Q1) / (Q1 + Q2)) / ((P2 - P1) / (P1 + P2)).
#16
If the price elasticity of demand for a good is -0.5, it means that the demand is:
Perfectly inelastic
ExplanationPrice elasticity of demand of -0.5 indicates perfectly inelastic demand.