#1
Which of the following describes price elasticity of demand?
The percentage change in quantity demanded divided by the percentage change in price.
ExplanationPrice elasticity of demand measures the responsiveness of quantity demanded to changes in price, calculated as the percentage change in quantity demanded divided by the percentage change in price.
#2
If a product has a price elasticity of demand equal to 0.5, it means that:
A 1% increase in price leads to a 0.5% decrease in quantity demanded.
ExplanationA price elasticity of demand of 0.5 indicates that a 1% increase in price results in a 0.5% decrease in quantity demanded, reflecting relatively inelastic demand.
#3
Which of the following goods is likely to have the most elastic demand?
Luxury cars
ExplanationLuxury cars are likely to have elastic demand as consumers can easily reduce their quantity demanded in response to price increases, given the availability of substitutes.
#4
What happens to total revenue when the price of a product with elastic demand is increased?
Total revenue decreases
ExplanationIn the case of elastic demand, an increase in price leads to a proportionately larger decrease in quantity demanded, resulting in a decrease in total revenue.