22 Questions
What is the definition of elasticity in economics?
The extent to which the quantity demanded or supplied of a particular good or service changes in response to a change in its price or income
What is Price Elasticity of Demand measuring?
How responsive consumers are to changes in prices of a good or service
If a 10% increase in price leads to a 20% decrease in quantity demanded, what is the price elasticity of demand?
2
What does a negative cross-price elasticity of demand between two goods indicate?
The two goods are complements
What are the three main determinants of price elasticity of demand?
Availability of close substitutes, degree of necessity, time horizon
What can be concluded about two goods with a cross-price elasticity of demand of 1.8?
They are substitute goods
What is the formula for calculating income elasticity of demand?
$($ΔQ/Q) / ($ΔI/I)$
What type of elasticity would be calculated if we wanted to know how responsive the quantity supplied is to changes in price?
Price Elasticity of Supply
An increase in the number of close substitutes for a product will result in which of the following?
an increase in the price elasticity of demand
If the income elasticity of demand for a good is 0.5, what will happen to the demand for the good if there is a 10% increase in income?
a 5% increase in demand
A company, ABC, differentiates its personal computers from those of other firms through effective advertising and unique features. This will result in which of the following?
the demand for ABC personal computers becoming less price elastic
Two goods, A and B, have the same price elasticity of supply. However, the cost of producing extra units increases more rapidly for good A than for good B. Which of the following is true?
the supply of good A is less elastic
Good A is a normal good with an income elasticity of 0.8. What will happen to the demand for good A if there is a 10% decrease in income?
an 8% decrease in demand
Which of the following will result in a more elastic supply of a good?
a decrease in the cost of shifting from producing one good to another
What is the formula for calculating the income elasticity of demand?
% change in quantity demanded / % change in income
If the price elasticity of demand for a good is -1.5, the demand is ________.
elastic
If a firm wants to increase its sales by 10%, and the price elasticity of demand is -2, by how much should it decrease the price?
5%
A university decides to raise tuition fees to increase the total revenue it receives from students. This strategy will work if the demand for this institution's education is ________.
inelastic
The government is going to increase the tax on petrol to raise additional revenue for road repairs. The government will be able to raise more revenue by raising the petrol tax if the demand for petrol is ________.
relatively inelastic
The ABC Computer Company spends a lot of money on advertising designed to convince you that its personal computers are superior to all other personal computers. If the ABC Company is successful, what will happen to the demand for ABC personal computers and the demand for other firms' personal computers?
The demand for ABC personal computers will become more price elastic, and the demand for other firms' personal computers will become less price elastic
What is the likely effect of a decrease in income on the demand for a good with an income elasticity of 0.5?
A decrease in demand
If the cross-price elasticity of demand between two goods is positive, what can be concluded about the goods?
They are substitutes
Test your understanding of economics concepts with this quiz, focusing on elasticity and other fundamental principles. Answer questions to check your knowledge of microeconomics and macroeconomics.
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