Mastering Price Elasticity of Demand

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Questions and Answers

Which of the following correctly defines elasticity in microeconomics?

Elasticity measures the responsiveness of quantity supplied to a change in price.
Elasticity measures the responsiveness of quantity demanded to a change in price. (correct)
Elasticity measures the responsiveness of price to a change in quantity demanded.
Elasticity measures the responsiveness of price to a change in quantity supplied.

Which of the following is an example of inelastic demand?

Demand for insulin by a diabetic (correct)
Demand for blue earbuds
Demand for a new smartphone
Demand for luxury cars

What does perfectly inelastic demand mean?

Price elasticity of demand is greater than one; quantity demanded is highly responsive to change in price
Price elasticity of demand is less than one; quantity demanded is not very responsive to change in price
Price elasticity of demand equals infinity; quantity demanded has infinite response to change in price
Price elasticity of demand equals zero; quantity demanded does not respond to change in price (correct)

What does perfectly elastic demand mean?

Price elasticity of demand equals infinity; quantity demanded has infinite response to change in price (B) Signup and view all the answers

What is the main difference between elastic and inelastic demand?

Elastic demand has a large response in quantity demanded when price changes, while inelastic demand has a small response. (B) Signup and view all the answers

Which formula is used to calculate price elasticity of demand?

% change in quantity demanded / % change in price (A) Signup and view all the answers

What is the difference between inelastic demand and elastic demand?

Inelastic demand has a small response in quantity demanded when price rises, while elastic demand has a large response in quantity demanded. (A) Signup and view all the answers

What is perfectly inelastic demand?

When the price elasticity of demand equals zero and the quantity demanded does not respond to a change in price. (B) Signup and view all the answers

What is perfectly elastic demand?

When the price elasticity of demand equals infinity and the quantity demanded has an infinite response to a change in price. (D) Signup and view all the answers

What is the main difference between inelastic demand and elastic demand?

Inelastic demand has a small response in quantity demanded when price changes, while elastic demand has a large response in quantity demanded. (D) Signup and view all the answers