MCQ
What does price elasticity of demand measure?
A) The speed at which prices change
B) The amount of money a product costs
C) How much the quantity demanded changes when price changes
D) The supply of a product
C)How much the quantity demanded changes when price changes
How does the time period affect the price elasticity of supply?
Supply is usually more elastic over a longer period because producers have more time to adjust their output.
Define "Unitary Elasticity."
When the percentage change in quantity demanded or supplied is exactly equal to the percentage change in price.
If supply is perfectly elastic, the PES value is...
A) 0
B) 1
C) Infinite
D) Negative
C) Infinite
Why might a company avoid raising prices on a product with elastic demand?
Because it could cause a large drop in sales, reducing total revenue.
Define "Elastic Demand."
When a small change in price causes a large change in the quantity demanded.
If a product has very few substitutes, its demand is usually...
A) Elastic
B) Inelastic
C) Unitary
D) Flexible
B) Inelastic
How do luxury goods typically respond to price changes, and why?
Luxury goods typically have elastic demand because people can easily stop buying them if prices increase.
Define "Perfectly Inelastic Supply."Give an example aswell.
Perfectly inelastic supply means that the quantity supplied does not change at all, no matter how much the price changes.Eg: land, prescripted drugs, insulin for diabetics, etc.
Why is understanding elasticity important for businesses?
A) To decide how many workers to hire
B) To understand how a change in price affects total sales
C) To determine the best color for their products
D) To calculate their taxes
B) To understand how a change in price affects total sales
Why might agricultural products have a relatively inelastic supply in the short term but a more elastic supply in the long term?
In the short term, agricultural supply is inelastic because crops take time to grow, and farmers cannot quickly adjust their output. In the long term, farmers can plant different crops, invest in better technology, or expand land use, making supply more elastic.
Define substitute goods.
Substitute goods are products that can be used in place of each other. If the price of one goes up, the demand for the other is likely to increase.
If there are many substitutes for a product, the demand is likely to be...
A) Elastic
B) Inelastic
C) Constant
D) Zero
A) Elastic
How can a government use knowledge of price elasticity of demand to make taxation decisions?
The government can tax goods with inelastic demand (like cigarettes or fuel) more heavily, as consumers will continue to buy them despite higher prices, leading to greater tax revenue without a large decrease in consumption.
Define "Inelastic Supply."
When a change in price leads to a small or no change in the quantity supplied.