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Questions and Answers
Which of the following is true about price elasticity of demand?
Which of the following is true about price elasticity of demand?
- A 10% increase in price will result in a 10% decrease in demand.
- A 10% increase in price will have no effect on demand.
- A 10% increase in price will result in a decrease in demand by more than 10%.
- A 10% increase in price will result in a decrease in demand by less than 10%. (correct)
What does elasticity measure?
What does elasticity measure?
- The extent to which supply will change.
- The extent to which cross elasticity will change.
- The extent to which demand will change. (correct)
- The extent to which income will change.
Which of the following is true about the relationship between price and demand when the price elasticity of demand is between 0 and -1?
Which of the following is true about the relationship between price and demand when the price elasticity of demand is between 0 and -1?
- The relationship is inelastic. (correct)
- The relationship is perfectly inelastic.
- The relationship is elastic.
- The relationship is perfectly elastic.
What does the formula for price elasticity of demand represent?
What does the formula for price elasticity of demand represent?
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Which of the following is true about the relationship between price and demand when the price elasticity of demand is between -1 and infinity?
Which of the following is true about the relationship between price and demand when the price elasticity of demand is between -1 and infinity?
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Study Notes
Price Elasticity of Demand
- Price elasticity of demand measures how responsive the quantity of a good or service demanded is to a change in its price or other influential factors.
- Elasticity measures the responsiveness of one variable to changes in another variable.
Price and Demand Relationship
- When the price elasticity of demand is between 0 and -1, a small percentage change in price will result in a smaller percentage change in demand, and demand is inelastic.
- When the price elasticity of demand is between -1 and infinity, a small percentage change in price will result in a larger percentage change in demand, and demand is elastic.
Formula for Price Elasticity of Demand
- The formula for price elasticity of demand represents the percentage change in quantity demanded in response to a 1% change in price.
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