#1
What is price elasticity of demand?
A measure of how responsive quantity demanded is to a change in price.
ExplanationMeasure of demand responsiveness to price changes.
#2
If demand is elastic, what happens to total revenue when price increases?
Total revenue decreases.
ExplanationDecreases with price increase in elastic demand.
#3
If price elasticity of demand is -0.5, demand is:
Inelastic.
ExplanationDemand is inelastic with -0.5 elasticity.
#4
How is price elasticity of demand calculated?
Percentage change in quantity demanded divided by percentage change in price.
ExplanationCalculated by % change in quantity demanded divided by % change in price.
#5
What does a price elasticity of -1.5 indicate about demand?
Demand is elastic.
ExplanationElastic demand indicated by -1.5 elasticity.
#6
Which factor does NOT affect the price elasticity of demand?
The cost of production.
ExplanationCost of production does not affect price elasticity of demand.
#7
When demand is unitary elastic, what is the relationship between price and total revenue?
Total revenue remains constant.
ExplanationConstant total revenue in unitary elastic demand.
#8
What is the effect of a perfectly elastic demand on total revenue if price is increased?
Total revenue becomes zero.
ExplanationTotal revenue becomes zero with price increase in perfectly elastic demand.
#9
If price elasticity of demand is 0, demand is:
Perfectly inelastic.
ExplanationPerfectly inelastic demand indicated by 0 elasticity.
#10
How does the time horizon affect price elasticity of demand?
In the long run, demand tends to be more elastic.
ExplanationLong run tends to increase demand elasticity.
#11
If a firm faces perfectly elastic demand, what is the effect of increasing price?
Total revenue becomes zero.
ExplanationTotal revenue becomes zero with price increase in perfectly elastic demand.
#12
What is the relationship between price elasticity of demand and revenue when demand is inelastic?
As price increases, revenue increases.
ExplanationIncreasing price leads to increased revenue in inelastic demand.