Question 1

The income elasticity of demand measures:&#10;A) How the quantity demanded changes in relation to price changes.&#10;B) How the quantity demanded changes in relation to income changes.&#10;C) A movement along the demand curve.&#10;D) The sensitivity of supply to changes in income.

Accepted Answer

The income elasticity of demand measures how the quantity demanded of a good responds to a change in consumers' income, indicating whether the good is a normal good (positive income elasticity) or an inferior good (negative income elasticity).

Question 2

If demand is relatively price inelastic:&#10;A) The quantity demanded never changes.&#10;B) The price never changes.&#10;C) The percentage change in quantity demanded is less than the percentage change in price.&#10;D) The percentage change in price is less than the percentage change in quantity demanded.

Accepted Answer

When demand is relatively price inelastic, it means that the percentage change in quantity demanded is less than the percentage change in price, indicating that consumers are not very responsive to price changes for that good or service.

Question 3

If the price elasticity of demand is - 2:&#10;A) Demand is price inelastic.&#10;B) A fall in price will decrease revenue.&#10;C) Demand is price elastic.&#10;D) A fall in price decreases sales.

Accepted Answer

Price elasticity of demand of -2 indicates that demand is price elastic, meaning a 1% decrease in price will lead to a 2% increase in quantity demanded, thus increasing revenue.

Question 4

The relationship between the price of one product and the quantity demanded of another is measured by:&#10;A) The income elasticity of demand&#10;B) The substitute elasticity of demand&#10;C) The complement price elasticity of demand&#10;D) The cross price elasticity of demand

Accepted Answer

The cross price elasticity of demand measures the relationship between the price of one product and the quantity demanded of another, indicating whether the goods are substitutes or complements based on the sign of the elasticity.

Question 5

If an increase in the price of a product increases revenue:&#10;A) Demand must be totally price inelastic.&#10;B) Demand must be totally price elastic.&#10;C) Demand is price inelastic.&#10;D) The income elasticity of demand is greater than 1.

Accepted Answer

When the price of a product increases and revenue also increases, it indicates that the demand for the product is price inelastic. This means that the percentage change in quantity demanded is less than the percentage change in price, leading to an increase in total revenue.

Question 6

Demand is most likely to be price inelastic:&#10;A) When there are many substitutes.&#10;B) Over time as individuals find alternatives.&#10;C) When the product is heavily branded.&#10;D) When the consumer can switch easily to other products.

Accepted Answer

Demand tends to be more price inelastic for heavily branded products because consumers develop brand loyalty and perceive these products as having no close substitutes, making them less sensitive to price changes.

Question 7

If the price elasticity of demand is positive this means the demand curve slopes downwards.

Accepted Answer

The price elasticity of demand is typically negative, reflecting that as price increases, quantity demanded decreases, and vice versa, which corresponds to a downward-sloping demand curve. A positive price elasticity would suggest an abnormal relationship not consistent with the general law of demand.

Question 8

If the price elasticity of demand is - 0.2 this means demand is price _________.

Accepted Answer

The answer of If the price elasticity of demand is...

Question 9

For a Giffen good:&#10;A) The price elasticity of demand is negative; the income elasticity of demand is negative.&#10;B) The price elasticity of demand is positive; the income elasticity of demand is negative.&#10;C) The price elasticity of demand is negative; the income elasticity of demand is positive.&#10;D) The price elasticity of demand is positive; the income elasticity of demand is positive.

Accepted Answer

Giffen goods are an exception to the typical law of demand, where despite an increase in price, the quantity demanded also increases. This is because the income effect of the price increase (leading to a decrease in real income) outweighs the substitution effect, causing consumers to buy more of the cheaper good as they can't afford the more expensive substitutes. The income elasticity of demand is negative because they are inferior goods; as income increases, demand for them decreases.

Question 10

Which of the following is the most price inelastic demand?&#10;A) -0.01&#10;B) -1&#10;C) -5&#10;D) -0.4

Accepted Answer

The price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good. A demand is considered perfectly inelastic when the elasticity is 0, meaning quantity demanded does not change at all with a change in price. The closer the elasticity is to 0 (whether negative or positive), the more inelastic the demand. Among the given options, -0.01 is closest to 0, indicating the most price inelastic demand.

Question 11

If the price of a good rises by 5 percent and the quantity demanded falls by 20 percent, then price elasticity of demand is equal to:&#10;A) 97&#10;B) 4&#10;C) 5&#10;D) 20

Accepted Answer

The answer of If the price of a good rises...

Question 12

If the value of the price elasticity of demand is less than one then:&#10;A) Demand is very sensitive to price.&#10;B) Demand is not very sensitive to price.&#10;C) Supply is very sensitive to price.&#10;D) Supply is not very sensitive to price.

Accepted Answer

The answer of If the value of the price elasticity...

Deck 5: The Elasticity of Demand