Master Price Elasticity

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Which area of study in economics deals with aggregate economic quantities and is rooted in microeconomics?


What does the theory of the consumer in microeconomics deal with?

Consumption by utility-maximizing individuals

What does the theory of the firm in microeconomics deal with?

Supply of goods and services by profit-maximizing firms

What is the most important variable that affects the quantity of a good that consumers are willing to buy?

Price of the good

What is the fundamental model of the private-enterprise economy?

Demand and supply model of the market

Which factor is likely to make the own-price elasticity of demand greater for a good?

Having many close substitutes

When faced with the same percentage increase in prices, consumers are more likely to cut back on which type of goods?

Non-discretionary goods

Which characteristic is likely to result in a less elastic demand for a good?

Being seen as necessary instead of optional

Which of the following is NOT mentioned as a factor that can affect the own-price elasticity of demand?

Having longer adjustment times

What is likely to be a complex result of various characteristics when it comes to elasticity?

The demand for a good

Which term in Equation 6 remains constant along the entire demand curve?

$\frac{\Delta Q}{\Delta P}$

At what price is the elasticity of demand for our hypothetical example equal to -0.2?

€1.48 per liter

When is demand said to be unit elastic?

When the magnitude of the own-price elasticity coefficient is equal to negative one

What is the interpretation of an elasticity coefficient of -1.28?

Demand is elastic

What is the quantity demanded when the price is €1.48 per liter in our hypothetical example?

47.54 liters per month

Which of the following is true about the demand function?

It captures all the influences on consumers' demand for a product or service.

What does the negative sign on the coefficient of gasoline price in Equation 2 indicate?

As the price of gasoline increases, the quantity of gasoline consumed decreases.

What is the dependent variable in Equation 2?

The quantity of gasoline demanded.

What is the inverse demand function?

$Px = 8.92 - 0.156Qx_d$

What does it mean for two goods to have a negative cross-price elasticity of demand?

They are complements.

Which of the following is a drawback of using the coefficient on the price variable as a measure of sensitivity?

It is dependent on the units of measurement

What is the formula for own-price elasticity of demand?

Epxd = %ΔQx_d / %ΔPx

What does the slope of the demand curve represent?

The change in price divided by the change in quantity

What is the interpretation of the demand curve in terms of quantity and price?

Both A and B

What does elasticity measure?

How sensitive one variable is to any other variable

Which of the following is a characteristic that tends to be predictive of a good's elasticity of demand?

The portion of the typical budget that is spent on the good

Which of the following is true about the demand curve facing a seller under conditions of perfect competition?

It is perfectly elastic

Which of the following is true about the long-run elasticity of demand for most goods?

It is greater than the short-run elasticity of demand

Which of the following is a characteristic that determines whether demand is highly elastic?

The presence of close substitutes for the good

Which of the following goods is likely to have a less elastic demand?


Test your understanding of price elasticity with this quiz. Explore how to algebraically expand Equation 5 and calculate the percentage change in variables. Gain a better understanding of price elasticity through practical examples.

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