60 Questions
What does an inelastic supply indicate?
The capacity to increase production is limited
What affects the price elasticity of supply?
Production capacity, time to respond, and mobility of resources
What is measured by cross elasticity of demand?
How the quantity demanded responds to a price change of another good
What is an example of complementary goods?
Cars and fuel
What does a positive cross elasticity of demand indicate?
The goods are substitutes
What is measured by income elasticity of demand?
How the quantity demanded responds to a change in consumer income
What is an example of a normal good?
Quality clothing
What is an example of an inferior good?
Generic brands
Why is it important to understand elasticity in business and policymaking?
To make informed decisions regarding pricing, market entry, and policy formulations
What can understanding elasticity of demand help businesses with?
Setting prices that optimize revenue
What is price elasticity a measure of?
How the quantity demanded or supplied of a product changes in response to a price change
How is price elasticity of demand calculated?
As the percentage change in quantity demanded divided by the percentage change in price
What is elastic demand?
When the elasticity is greater than 1
Which of the following factors makes demand more elastic?
More substitutes
What is the characteristic of necessities in terms of price elasticity of demand?
They have inelastic demand
What is price elasticity of supply a measure of?
The responsiveness of quantity supplied to a change in price
What is the characteristic of elastic supply?
Suppliers can increase output without a significant rise in cost
What happens to the demand for a product over a long period of time?
It becomes more elastic
What is unit elastic demand?
When the elasticity is exactly 1
Why do products that consume a larger portion of the consumer's income tend to have more elastic demand?
Because consumers are more sensitive to price changes
When the elasticity of supply is less than 1, what can be inferred about the capacity to increase production?
It is limited
Which of the following factors makes supply more inelastic?
Limited mobility of resources
What is the relation between the quantity demanded of cars and the price of fuel?
Negative cross elasticity
What can be inferred about a good with a negative income elasticity of demand?
It is an inferior good
What is the primary goal of understanding elasticity in business and policymaking?
To make informed decisions
Which of the following types of goods is likely to have a positive income elasticity of demand?
Normal goods
What happens to the supply of a good when its production resources can be easily allocated to different uses?
It becomes more elastic
What can businesses do with the knowledge of elasticity of supply?
Plan production levels
What can be inferred about two goods with a positive cross elasticity of demand?
They are substitute goods
Over a longer period, what happens to the elasticity of supply?
It becomes more elastic
What is the primary difference between price elasticity of demand and price elasticity of supply?
One measures the responsiveness of consumers and the other measures the responsiveness of suppliers
What happens to the elasticity of demand for a product when there are more substitutes available?
It becomes more elastic
Which of the following products is likely to have inelastic demand?
Bread
What is the characteristic of elastic supply?
Suppliers can increase output without a significant rise in cost
Why do businesses need to understand price elasticity of demand?
To make informed decisions about production and pricing
What is the effect of a longer time period on the elasticity of demand?
It becomes more elastic
What is the primary difference between elasticity of demand and elasticity of supply?
One measures the responsiveness of consumers and the other measures the responsiveness of suppliers
What is the likely outcome when the price of a product with elastic demand increases?
Quantity demanded will decrease significantly
What is the characteristic of a product with unit elastic demand?
The percentage change in quantity demanded is equal to the percentage change in price
What is the likely outcome when the price of a product with elastic supply decreases?
Quantity supplied will increase
If a company has a highly elastic supply of labor, which of the following is likely to occur?
The company will be able to increase production rapidly in response to price changes.
What is the likely outcome when the price of a good with a high cross elasticity of demand with another good increases?
The demand for the other good will decrease.
Which of the following is an example of a good with a high income elasticity of demand?
Luxury cars
What is the likely outcome when a company operates in a market with a low cross elasticity of demand?
The company will be unaffected by changes in prices of other goods.
If a company has an inelastic supply of a good, what is the likely outcome when the market price increases?
The company will not change its production level.
What is the likely outcome when the government imposes a tax on a good with an elastic demand?
The demand for the good will decrease significantly.
If two goods have a negative cross elasticity of demand, what can be inferred about the goods?
The goods are complementary.
What is the likely outcome when a company has a highly elastic demand for its good?
The company will be sensitive to changes in price.
If a company operates in a market with a high income elasticity of demand, what is the likely outcome when consumer income increases?
The demand for the good will increase significantly.
What is the likely outcome when a company has a highly inelastic supply of a good?
The company's production level will be insensitive to changes in price.
If the price of a product with a price elasticity of demand of 2 increases by 10%, what will be the approximate percentage change in the quantity demanded?
20%
A product has a price elasticity of supply of 1.5. If the price of the product increases by 20%, what will be the approximate percentage change in the quantity supplied?
30%
Which of the following is a characteristic of a product with an elastic demand?
A small change in price leads to a large change in quantity demanded
If the price of a product with a price elasticity of demand of 0.5 decreases by 15%, what will be the approximate percentage change in the quantity demanded?
7.5%
What happens to the elasticity of demand for a product when the time period is increased?
It becomes more elastic
Which of the following products is likely to have a more elastic demand, a luxury car or a needed medicine?
Luxury car
What happens to the quantity demanded of a product when the price of a close substitute decreases?
It decreases
What is the effect of a decrease in the price of a product with an elastic supply?
A large increase in quantity supplied
If the price elasticity of demand for a product is 3, what will be the effect of a 10% increase in price on the quantity demanded?
A 30% decrease in quantity demanded
What is the effect of an increase in the proportion of income spent on a product on its elasticity of demand?
It becomes more elastic
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