Elasticity of Demand
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Questions and Answers

Why is vanilla ice cream more elastic than food?

  • Because it's a necessity
  • Because it's a luxury (correct)
  • Because it's a type of food
  • Because it's a substitute for food

    • What happens to the quantity demanded of a good when the price elasticity of demand is high?

  • It remains unchanged
  • It becomes zero
  • It responds substantially to changes in price (correct)
  • It responds slightly to changes in price

    • What is the main factor that determines the price elasticity of demand over different time horizons?

  • Availability of close substitutes
  • Time horizon (correct)
  • Necessities vs luxuries
  • Definition of the market

    • What type of goods tend to have more elastic demand?

    <p>Luxuries</p> Signup and view all the answers

    What is the meaning of a unit elastic demand?

    <p>When the elasticity of demand is equal to one</p> Signup and view all the answers

    Which of the following statements about elastic demand is true?

    <p>Elastic demand means that the quantity demanded changes proportionately more than the price.</p> Signup and view all the answers

    What is the main difference between necessities and luxuries in terms of price elasticity of demand?

    <p>Necessities have inelastic demand, while luxuries have elastic demand.</p> Signup and view all the answers

    Which of the following goods would likely have a more elastic demand?

    <p>Butter</p> Signup and view all the answers

    What happens to the demand curve when the price elasticity of demand is perfectly elastic?

    <p>The demand curve becomes horizontal.</p> Signup and view all the answers

    Which of the following factors determines the elasticity of demand?

    <p>Availability of close substitutes</p> Signup and view all the answers

    What is the term for a market with a high degree of elasticity of demand?

    <p>Narrowly defined market</p> Signup and view all the answers

    If a product is considered a necessity, its demand is likely to be:

    <p>inelastic</p> Signup and view all the answers

    What is the formula for computing price elasticity of demand using the percentage method?

    <p>%ΔQ / %ΔP</p> Signup and view all the answers

    When demand is inelastic, an increase in price will lead to an increase in:

    <p>total revenue</p> Signup and view all the answers

    What is the formula for the midpoint method of measuring elasticity?

    <p>(Q2 - Q1) / (Q1 + Q2) * (P2 - P1) / (P1 + P2)</p> Signup and view all the answers

    What does income elasticity of demand measure?

    <p>how the quantity demanded changes as consumer income changes</p> Signup and view all the answers

    What is the term for the responsiveness of the quantity supplied of one good to a change in the price of another good?

    <p>cross-price elasticity</p> Signup and view all the answers

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