#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 does a price elasticity of demand of -0.2 imply?
Demand is inelastic.
ExplanationInelastic demand indicated by -0.2 elasticity.
#9
What happens to total revenue when demand is unitary elastic?
Total revenue remains constant.
ExplanationConstant total revenue in unitary elastic demand.
#10
Which of the following goods is likely to have the most elastic demand?
Luxury cars
ExplanationLuxury cars likely have the most elastic demand.
#11
If the price of a necessity such as bread increases, what happens to the total revenue earned by a bakery with inelastic demand?
Total revenue increases.
ExplanationIncreased total revenue with price increase in inelastic demand for bread.
#12
If the cross-price elasticity of demand between two goods is negative, what can be inferred about the relationship between the goods?
They are complementary goods.
ExplanationNegative cross-price elasticity indicates complementary goods relationship.
#13
What does a price elasticity of demand of 1.2 indicate about demand?
Demand is elastic.
ExplanationElastic demand indicated by 1.2 elasticity.
#14
Which of the following would likely have the most inelastic demand?
Gasoline for everyday commuting
ExplanationGasoline for everyday commuting likely has the most inelastic demand.
#15
What is the effect of a price increase on total revenue if demand is inelastic?
Total revenue increases.
ExplanationIncreased total revenue with price increase in inelastic demand.
#16
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.
#17
If price elasticity of demand is 0, demand is:
Perfectly inelastic.
ExplanationPerfectly inelastic demand indicated by 0 elasticity.
#18
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.
#19
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.
#20
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.
#21
What is the relationship between price elasticity and total revenue at the unitary elastic point?
Total revenue is maximized.
ExplanationMaximized total revenue at unitary elastic point.
#22
If the price elasticity of demand is -2, a 10% decrease in price will result in what percentage change in quantity demanded?
20% increase
Explanation20% increase in quantity demanded with 10% price decrease in -2 elasticity.
#23
In which scenario would a firm prefer to have inelastic demand for its product?
When it wants to increase total revenue by raising prices
ExplanationFirms prefer inelastic demand when seeking to increase total revenue via price increases.
#24
If the price of a product increases by 10% and the quantity demanded decreases by 15%, what is the price elasticity of demand?
-1.67
Explanation-1.67 price elasticity with 10% price increase and 15% quantity decrease.
#25
What is the relationship between price elasticity and total revenue at the point of unitary elasticity?
Total revenue remains constant.
ExplanationConstant total revenue at unitary elastic point.