Price Elasticity of Demand: Understanding and Calculation
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Questions and Answers

What does the Price Elasticity of Demand measure?

  • The responsiveness of quantity demanded to a change in price (correct)
  • The income elasticity of demand
  • The change in price of a good or service
  • The total revenue from a good or service

    • How is the Price Elasticity of Demand calculated?

  • By multiplying the percentage change in quantity demanded with the percentage change in price
  • By dividing the percentage change in quantity demanded by the percentage change in income
  • By adding the percentage change in quantity demanded to the percentage change in price
  • By dividing the percentage change in quantity demanded by the percentage change in price (correct)

    • Why is the Price Elasticity of Demand always expressed as a positive number?

  • To indicate that demand always increases with price
  • To avoid confusion
  • To focus on the absolute value of the responsiveness (correct)
  • To simplify calculations

    • How does elasticity affect demand analysis?

    <p>It makes demand analysis more useful (C)</p> Signup and view all the answers

    What does the slope of a demand curve indicate?

    <p>The type of elasticity of demand (D)</p> Signup and view all the answers

    What is the significance of substitution in determining elasticity of demand?

    <p>It affects the price elasticity of demand (C)</p> Signup and view all the answers

    What is the formula to calculate the price elasticity of demand?

    <p>ED = %ΔP / %ΔQ (A)</p> Signup and view all the answers

    When is demand considered to be unit elastic?

    <p>When ED = 1 (A)</p> Signup and view all the answers

    What does it mean if demand is perfect inelastic?

    <p>Q does not respond at all to changes in price (B)</p> Signup and view all the answers

    What makes demand more or less elastic according to the text?

    <p>The number of substitutes for the good and the time period being considered (A)</p> Signup and view all the answers

    What is the most important determinant of price elasticity according to the text?

    <p>The number of substitutes for the good (D)</p> Signup and view all the answers

    Which curve represents perfect elastic demand according to the text?

    <p>Curve P Q (D)</p> Signup and view all the answers

    For non-durable goods, demand is more elastic over a long period relative to a short period because:

    <p>It is easier for consumers to substitute one good for another over a long period if the price changes (B)</p> Signup and view all the answers

    What does it mean if a good has substitutes according to the text?

    <p>&quot;A rise in the price of that good will cause the consumer to shift consumption to those substitute goods&quot; (A)</p> Signup and view all the answers

    "Elasticity is not the same as slope, but, the steeper a curve is at a given point, the less elastic demand." This statement implies that:

    <p>&quot;The steeper the curve, the less elastic demand&quot; (D)</p> Signup and view all the answers

    What is the formula to calculate the price elasticity of demand?

    <p>Percentage change in quantity demanded divided by the percentage change in price (B)</p> Signup and view all the answers

    When is demand considered to be unit elastic?

    <p>When the percentage change in quantity demanded is equal to the percentage change in price (B)</p> Signup and view all the answers

    How does elasticity affect demand analysis?

    <p>Elasticity provides insights into how consumers respond to price changes (C)</p> Signup and view all the answers

    What makes demand more or less elastic according to the text?

    <p>Availability of close substitutes and the necessity of the good (C)</p> Signup and view all the answers

    "Elasticity is not the same as slope, but, the steeper a curve is at a given point, the less elastic demand." This statement implies that:

    <p>Higher prices lead to less elastic demand (B)</p> Signup and view all the answers

    What does it mean if a good has substitutes according to the text?

    <p>There are alternatives available for that good (D)</p> Signup and view all the answers

    What is the price elasticity of demand if the percentage change in quantity is greater than the percentage change in price?

    <p>Elastic demand (D)</p> Signup and view all the answers

    What is the price elasticity of demand if the percentage change in quantity is less than the percentage change in price?

    <p>Inelastic demand (C)</p> Signup and view all the answers

    When is demand considered to be unit elastic?

    <p>When the percentage change in quantity equals the percentage change in price (A)</p> Signup and view all the answers

    What is demand considered to be if the quantity does not respond at all to changes in price?

    <p>Perfectly inelastic demand (C)</p> Signup and view all the answers

    What is demand considered to be if the quantity responds enormously to changes in price?

    <p>Perfectly elastic demand (A)</p> Signup and view all the answers

    According to the text, what makes demand more or less elastic?

    <p>The number of substitutes for the good (A)</p> Signup and view all the answers

    Why is demand more elastic over a long period relative to a short period for non-durable goods?

    <p>Because consumers can easily substitute one good for another over a long period (B)</p> Signup and view all the answers

    Why is the demand for products like salt considered quite inelastic?

    <p>Because consumers do not consider the price while buying such products (D)</p> Signup and view all the answers

    What does the slope of a demand curve indicate according to the text?

    <p>The responsiveness of quantity demanded to changes in price (D)</p> Signup and view all the answers

    What does substitution have the most significant impact on, according to the text?

    <p>The number of substitutes for the good (A)</p> Signup and view all the answers

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