Deck 5: The Elasticity of Demand

Question 1

The income elasticity of demand measures:

A) How the quantity demanded changes in relation to price changes.
B) How the quantity demanded changes in relation to income changes.
C) A movement along the demand curve.
D) The sensitivity of supply to changes in income.

Answer 1

B

Question 2

If demand is relatively price inelastic:

A) The quantity demanded never changes.
B) The price never changes.
C) The percentage change in quantity demanded is less than the percentage change in price.
D) The percentage change in price is less than the percentage change in quantity demanded.

Answer 2

C

Question 3

If the price elasticity of demand is - 2:

A) Demand is price inelastic.
B) A fall in price will decrease revenue.
C) Demand is price elastic.
D) A fall in price decreases sales.

Answer 3

C

Question 4

The relationship between the price of one product and the quantity demanded of another is measured by:

A) The income elasticity of demand
B) The substitute elasticity of demand
C) The complement price elasticity of demand
D) The cross price elasticity of demand

Question 5

If an increase in the price of a product increases revenue:

A) Demand must be totally price inelastic.
B) Demand must be totally price elastic.
C) Demand is price inelastic.
D) The income elasticity of demand is greater than 1.

Question 6

Demand is most likely to be price inelastic:

A) When there are many substitutes.
B) Over time as individuals find alternatives.
C) When the product is heavily branded.
D) When the consumer can switch easily to other products.

Question 7

If the price elasticity of demand is positive this means the demand curve slopes downwards.

Question 8

If the price elasticity of demand is - 0.2 this means demand is price _________.

Question 9

For a Giffen good:

A) The price elasticity of demand is negative; the income elasticity of demand is negative.
B) The price elasticity of demand is positive; the income elasticity of demand is negative.
C) The price elasticity of demand is negative; the income elasticity of demand is positive.
D) The price elasticity of demand is positive; the income elasticity of demand is positive.

Question 10

Which of the following is the most price inelastic demand?

A) -0.01
B) -1
C) -5
D) -0.4

Question 11

If the price of a good rises by 5 percent and the quantity demanded falls by 20 percent, then price elasticity of demand is equal to:

A) 97
B) 4
C) 5
D) 20

Question 12

If the value of the price elasticity of demand is less than one then:

A) Demand is very sensitive to price.
B) Demand is not very sensitive to price.
C) Supply is very sensitive to price.
D) Supply is not very sensitive to price.