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Principles of Market Demand and Elasticity Quiz

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#1

1. What is the law of demand?

As the price decreases, the quantity demanded increases.
Explanation

Inverse relationship between price and quantity demanded.

#2

2. What is elasticity of demand?

A measure of how much the quantity demanded of a good responds to changes in the price of that good.
Explanation

Sensitivity of quantity demanded to price changes.

#3

3. If the price of a good increases by 10% and the quantity demanded decreases by 5%, what is the price elasticity of demand?

0.5
Explanation

Negative slope ratio indicates inelastic demand.

#4

6. What does the cross-price elasticity of demand measure?

The responsiveness of quantity demanded to a change in the price of a different good.
Explanation

Effect of price change in one good on the demand for another.

#5

8. What is the relationship between elasticity and total revenue?

Inelastic demand results in higher total revenue.
Explanation

Inverse relationship; higher price outweighs lower quantity.

#6

10. How does the concept of time affect the elasticity of demand?

The impact of time on elasticity varies depending on the good.
Explanation

Goods may become more elastic over time as substitutes emerge.

#7

4. What is a Giffen good?

A good for which demand decreases as income decreases.
Explanation

Contrary to law of demand; demand rises with price due to income effect.

#8

5. Which of the following factors does not affect the elasticity of demand?

Total revenue of the seller.
Explanation

Total revenue doesn't directly impact elasticity.

#9

7. If the income elasticity of demand for a luxury good is 1.5, what does this indicate about the good?

It is a normal good.
Explanation

Positive elasticity implies a normal good.

#10

9. Which of the following is an example of a perfectly elastic demand?

Homogeneous agricultural products.
Explanation

Consumers switch instantly to substitutes at any price change.

#11

11. What is the midpoint formula for calculating the price elasticity of demand?

[(Q2 - Q1) / (Q1 + Q2)] / [(P2 - P1) / (P1 + P2)]
Explanation

Calculates elasticity between two points on the demand curve.

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