#1
Which of the following describes price elasticity of demand?
A measure of how much the quantity demanded of a good responds to a change in price
ExplanationPrice elasticity of demand measures responsiveness of quantity demanded to price changes.
#2
In terms of consumer behavior, what does a negative cross-price elasticity indicate?
Complementary goods
ExplanationNegative cross-price elasticity indicates complementary goods.
#3
What does it mean if the price elasticity of demand for a good is greater than 1?
The demand for the good is elastic
ExplanationPrice elasticity greater than 1 implies elastic demand.
#4
How does income elasticity of demand help to classify goods?
It indicates whether a good is a normal or inferior good
ExplanationIncome elasticity helps classify goods as normal or inferior.
#5
What does a price elasticity of demand of 0.5 signify?
The demand for the good is inelastic
ExplanationPrice elasticity of 0.5 indicates inelastic demand.
#6
How does the availability of substitutes affect the price elasticity of demand?
Increases elasticity
ExplanationMore substitutes increase price elasticity of demand.
#7
How does time affect the price elasticity of demand for a good?
Longer time frames generally result in more elastic demand
ExplanationLonger time frames lead to more elastic demand.
#8
What does it mean if the price elasticity of supply is greater than 1?
The supply is elastic
ExplanationSupply elasticity greater than 1 means elastic supply.
#9
Which of the following factors affects the price elasticity of supply?
The time horizon
ExplanationPrice elasticity of supply is affected by the time horizon.
#10
What is the formula for calculating price elasticity of demand using the midpoint method?
((Q2 - Q1) / ((Q2 + Q1)/2)) / ((P2 - P1) / ((P2 + P1)/2))
ExplanationPrice elasticity using midpoint method formula: ((%ΔQ) / (%ΔP))
#11
What is the relationship between price elasticity and total revenue?
Total revenue is always maximized at unit elasticity
ExplanationTotal revenue maximized at unit elasticity.
#12
What is an example of a highly price elastic good?
Salt
ExplanationSalt is an example of highly price elastic good.
#13
How does the elasticity of supply differ in the short run and the long run?
Supply is more elastic in the long run
ExplanationSupply is more elastic in the long run.
#14
What is an example of a product with perfectly elastic supply?
Commodity crops like wheat or corn
ExplanationCommodity crops have perfectly elastic supply.
#15
What effect does a perfectly inelastic demand curve have on total revenue when prices change?
Total revenue remains constant regardless of price changes
ExplanationPerfectly inelastic demand: Total revenue remains constant.
#16
Why might luxury goods have more elastic demand compared to necessities?
Consumers have more substitutes available for luxury goods
ExplanationLuxury goods have more substitutes, hence more elastic demand.