#1
What is price elasticity of demand?
The measure of how much the quantity demanded of a good responds to a change in the price of that good.
ExplanationQuantifies responsiveness of quantity demanded to price changes.
#2
If the price elasticity of demand for a good is greater than 1, it means that the demand is:
Elastic
ExplanationDemand is sensitive to price changes.
#3
What does a price elasticity of -0.5 imply?
Demand is inelastic
ExplanationQuantity demanded is insensitive to price changes.
#4
Which of the following goods is likely to have a higher price elasticity of demand?
Luxuries
ExplanationLuxury items typically have elastic demand.
#5
Which of the following statements is true regarding the relationship between price elasticity and total revenue?
When demand is inelastic, an increase in price increases total revenue.
ExplanationInelastic demand causes total revenue to rise with price increases.
#6
What happens to total revenue if a firm decreases its price and the demand is elastic?
Total revenue increases
ExplanationDecreasing prices boosts revenue with elastic demand.
#7
Which of the following factors affects price elasticity of demand?
All of the above
ExplanationVarious factors including substitutes, necessities, and time affect elasticity.
#8
How can a firm increase total revenue if demand is inelastic?
Increase price
ExplanationRaising prices increases revenue when demand is insensitive to price changes.
#9
What is the formula to calculate price elasticity of demand using percentage changes?
((% Change in Quantity Demanded) / (% Change in Price)) * 100
ExplanationFormula to quantify elasticity based on percentage changes in quantity and price.
#10
If the cross-price elasticity of demand between two goods is negative, what can be said about their relationship?
They are complementary goods
ExplanationGoods whose demand is influenced inversely by price changes in another are complementary.
#11
Which of the following is an example of a product with perfectly inelastic demand?
Gasoline in the short run
ExplanationDemand for gasoline remains constant despite price changes in the short term.
#12
If the price of good X increases and, as a result, the demand for good Y increases, what can be concluded about the goods X and Y?
They are substitute goods
ExplanationGoods with a positive cross-price elasticity are substitutes.
#13
If the price of a product increases by 10% and the quantity demanded decreases by 5%, what is the price elasticity of demand?
0.5
ExplanationDemand is relatively inelastic.
#14
Why might a perfectly elastic demand curve be unrealistic in the real world?
Consumers are highly responsive to price changes
ExplanationIn reality, consumers rarely have infinitely elastic demand.
#15
What is the relationship between price elasticity and the slope of the demand curve?
Price elasticity and slope are inversely related.
ExplanationInversely proportional relationship between elasticity and slope.
#16
What is an example of a good with perfectly elastic demand?
Bottled water
ExplanationConsumers can easily switch to alternatives in response to price changes.