Elasticity of Demand and Supply: Definition, Types, and Applications

Question 1

Which of the following factors does NOT affect the price elasticity of demand for a product?

Accepted Answer

Geographic region where the product is sold

Answer

Number of substitutes available

Answer

Price of the product itself

Answer

Income level of consumers

Question 2

How can a company use the concept of price elasticity of demand to determine the optimal price for a product?

Accepted Answer

Set the price where total revenue is maximized.

Answer

Set the lowest possible price to attract more customers.

Answer

Set the highest possible price to maximize profits.

Question 3

Which of the following is NOT a determinant of price elasticity of demand?

Accepted Answer

Price

Answer

Income

Answer

Proportion of income spent on the good

Answer

Availability of substitutes

Question 4

Which of the following goods would most likely have a perfectly inelastic supply?

Accepted Answer

Water

Answer

Luxury cars

Answer

Clothing

Answer

Smartphones

Question 5

What is the slope of the supply curve for a perfectly elastic supply?

Accepted Answer

Horizontal

Answer

Vertical

Answer

Downward sloping

Answer

Upward sloping

Question 6

What is the impact on consumer surplus when the price elasticity of demand is greater than one?

Accepted Answer

An increase in price will lead to a larger increase in consumer surplus.

Answer

An increase in price will lead to a smaller increase in consumer surplus.

Answer

Consumer surplus will remain unchanged.

Question 7

What is the difference between arc elasticity and point elasticity?

Accepted Answer

Arc elasticity measures the elasticity over a range of prices, while point elasticity measures it at a specific price point.

Answer

Arc elasticity is more accurate than point elasticity.

Answer

Point elasticity can be negative, while arc elasticity cannot.

Question 8

What is the significance of the cross-price elasticity of supply?

Accepted Answer

It measures the responsiveness of supply of one good to changes in the price of another good.

Answer

It predicts the change in quantity demanded when the price of a substitute good changes.

Answer

It is always negative.

Question 9

What is the term used to describe the responsiveness of quantity demanded to a change in price?

Accepted Answer

Price elasticity of demand

Answer

Income elasticity of demand

Answer

Elasticity of supply

Answer

Cross-price elasticity of demand

Question 10

If the price elasticity of demand for a product is -0.8, an 8% rise in price would result in what percentage change in the quantity demanded?

Accepted Answer

6.4% decrease

Answer

8% decrease

Answer

6.4% increase

Question 11

What is the term used to describe the responsiveness of quantity supplied to a change in price?

Accepted Answer

Price elasticity of supply

Answer

Elasticity of demand

Answer

Cross-price elasticity of supply

Answer

Income elasticity of supply

Question 12

If the price elasticity of supply for a product is 1.2, a 9% rise in price would result in what percentage change in the quantity supplied?

Accepted Answer

10.8% increase

Answer

12% increase

Answer

9% decrease

Question 13

What is the key distinction between elastic and inelastic demand?

Accepted Answer

Elastic demand is more responsive to changes in price.

Answer

Elastic demand is not responsive to changes in price.

Answer

Inelastic demand is more responsive to changes in price.

Question 14

Which of the following is NOT a type of elasticity typically studied in microeconomics?

Accepted Answer

Factor elasticity of production

Answer

Price elasticity of demand

Answer

Income elasticity of demand

Answer

Cross-price elasticity of demand

Question 15

Which of the following factors is most likely to affect the elasticity of demand for a normal good?

Accepted Answer

The proportion of income spent on the good.

Answer

The number of consumers in the market.

Answer

The price of the good.

Question 16

A good with a price elasticity of supply of 2 is considered to be:

Accepted Answer

Elastic.

Answer

Unit elastic.

Answer

Inelastic.

Answer

Perfectly elastic.

Question 17

What type of elasticity refers to the responsiveness of the quantity demanded to a change in consumer income?

Accepted Answer

Income elasticity of demand.

Answer

Cross-price elasticity of demand.

Answer

Cross-price elasticity of supply.

Answer

Price elasticity of demand.

Question 18

In a market, the price of a product decreases by 10%, leading to a 15% increase in quantity demanded. What type of elasticity of demand does this represent?

Accepted Answer

Elastic

Answer

Unitary elastic

Answer

Perfectly elastic

Answer

Inelastic

Question 19

Which of the following government policies would most likely lead to an increase in supply?

Accepted Answer

Subsidies to producers

Answer

Price ceilings

Answer

Import tariffs

Question 20

In a perfectly competitive market, the supply curve is typically:

Accepted Answer

Horizontal

Answer

Vertical

Answer

Downward sloping

Answer

Upward sloping

Question 21

Which of the following can cause a shift in the supply curve?

Accepted Answer

All of the above

Answer

Change in number of producers

Answer

Change in input costs

Answer

Change in technology

Question 22

What is the relationship between elasticity of demand and total revenue?

Accepted Answer

Inverse

Answer

Direct

Answer

Unrelated

Question 23

In a market with inelastic supply, if demand increases by 5%, what will happen to the price?

Accepted Answer

The price will increase by more than 5%.

Answer

The price will increase by less than 5%.

Answer

The price will increase by exactly 5%.

Answer

The price will remain unchanged.

Question 24

If a 10% increase in the price of a luxury car leads to a 20% decrease in demand, what is the price elasticity of demand for luxury cars?

Accepted Answer

Elastic

Answer

Inelastic

Answer

Unit elastic

Answer

Perfectly elastic

Question 25

Which of these goods is likely to have the most inelastic demand?

Accepted Answer

Prescription medication

Answer

Designer clothing

Answer

Luxury car

Answer

Concert tickets

Question 26

If the price elasticity of supply is 0.5, what does this mean?

Accepted Answer

A 10% increase in price will lead to a 5% increase in quantity supplied.

Answer

A 10% increase in price will lead to a 20% increase in quantity supplied.

Answer

A 10% increase in price will lead to a 10% increase in quantity supplied.

Question 27

A farmer decides to plant more wheat after the price of wheat increases significantly. This is an example of:

Accepted Answer

Elastic supply

Answer

Perfectly inelastic supply

Answer

Inelastic supply

Answer

Perfectly elastic supply

Question 28

If the demand for a particular type of smartphone is highly elastic, what is likely to happen to total revenue if the manufacturer raises the price?

Accepted Answer

Total revenue will decrease.

Answer

Total revenue will increase.

Answer

It is impossible to determine.

Answer

Total revenue will remain unchanged.

Question 29

If the demand for gasoline is inelastic, who is likely to bear the majority of the burden of a tax imposed on gasoline by the government?

Accepted Answer

Consumers

Answer

Producers

Answer

The government

Answer

Both consumers and producers equally

Question 30

A company is considering lowering the price of its product to increase sales. In which scenario would this strategy be most likely to be successful?

Accepted Answer

The demand for the product is elastic.

Answer

The demand for the product is inelastic.

Answer

The supply of the product is inelastic.

Answer

The supply of the product is elastic.

Question 31

The income elasticity of demand for a good is 1.5. What does this mean?

Accepted Answer

A 10% increase in income will lead to a 15% increase in demand for the good.

Answer

A 10% increase in income will lead to a 1.5% increase in demand for the good.

Answer

The good is a necessity.

Question 32

Which of the following is NOT a factor that can influence the elasticity of supply?

Accepted Answer

The price of complementary goods

Answer

The availability of resources

Answer

The time period considered

Answer

The ability to store inventory

Question 33

Which of the following factors will shift the demand curve for a normal good to the right?

Accepted Answer

Decrease in the price of a complementary good

Answer

Increase in the price of a substitute good

Answer

Increase in consumer tastes and preferences

Answer

Decrease in consumer income

Question 34

A price elasticity of demand of -1.5 indicates that:

Accepted Answer

A 1% increase in price will lead to a 1.5% decrease in quantity demanded

Answer

A 1% decrease in price will lead to a 1.5% increase in quantity demanded

Answer

A 1.5% increase in price will lead to a 1% decrease in quantity demanded

Question 35

Which of the following is NOT a determinant of supply elasticity?

Accepted Answer

Number of consumers in the market

Answer

Availability of substitutes

Answer

Time period

Answer

Technological advancements

Question 36

A market with a perfectly inelastic demand curve will:

Accepted Answer

Experience no change in quantity demanded despite changes in price

Answer

Have a steep upward-sloping supply curve

Answer

Be in equilibrium at a high quantity

Question 37

Which of the following will shift the supply curve for a good to the left?

Accepted Answer

Increase in input costs

Answer

Technological advancements

Answer

Government subsidies

Answer

Decrease in the number of producers

Question 38

A cross-price elasticity of demand measures the:

Accepted Answer

Responsiveness of the quantity demanded of one good to a change in the price of another good

Answer

Responsiveness of the quantity supplied of a good to a change in its own price

Answer

Responsiveness of the quantity demanded of a good to a change in its own price

Question 39

Which of the following goods is likely to have an inelastic demand?

Accepted Answer

Insulin

Answer

Cars

Answer

Clothing

Question 40

A market with a perfectly elastic supply curve will:

Accepted Answer

Produce an infinite quantity at any price below the equilibrium price

Answer

Have a very steep downward-sloping demand curve

Answer

Be in equilibrium at a high price

Question 41

Which of the following will decrease the price elasticity of demand for a good?

Accepted Answer

Lack of available substitutes

Answer

High income levels of consumers

Answer

Importance of the good to consumers

Answer

Short length of the time period considered

Question 42

A positive income elasticity of demand indicates that:

Accepted Answer

As consumer income increases, the quantity demanded of the good increases

Answer

As consumer income increases, the quantity demanded of the good decreases

Answer

As consumer income decreases, the quantity demanded of the good increases

Question 43

A 10% increase in the price of bus tickets leads to a 20% decrease in the number of passengers. What is the price elasticity of demand for bus tickets?

Accepted Answer

-2

Answer

0.5

Answer

-0.5

Answer

2

Question 44

Which of the following goods is likely to have the most elastic demand?

Accepted Answer

A luxury car

Answer

Gasoline

Answer

A loaf of bread

Answer

Electricity

Question 45

If the price elasticity of demand for a good is less than 1, what does it imply about the good?

Accepted Answer

The good is relatively inelastic, meaning a change in price has a smaller effect on quantity demanded.

Answer

The good is highly elastic, meaning a change in price has a large effect on quantity demanded.

Question 46

A farmer increases the price of potatoes by 10%, but the quantity of potatoes sold remains the same. What is the price elasticity of demand for potatoes in this scenario?

Accepted Answer

0

Answer

Infinite

Answer

-1

Answer

1

Question 47

A bakery discovers that an increase in the price of flour leads to a smaller increase in the price of bread. This suggests that the supply of bread is:

Accepted Answer

Relatively inelastic

Answer

Perfectly elastic

Answer

Relatively elastic

Answer

Perfectly inelastic

Question 48

A company is considering raising the price of its product. They know the demand for the product is price elastic. What is the likely outcome of this price increase?

Accepted Answer

A decrease in total revenue.

Answer

A decrease in profits.

Answer

An increase in total revenue.

Answer

No change in total revenue.

Question 49

Which of the following is NOT a factor that influences the price elasticity of supply?

Accepted Answer

The availability of substitutes

Answer

The availability of resources

Answer

The ease of storage

Answer

The time period considered

Question 50

A government imposes a tax on gasoline. What is the likely effect on the price elasticity of demand for gasoline in the short run?

Accepted Answer

Demand will be more inelastic in the short run.

Answer

The effect on demand is unpredictable.

Answer

Demand will be more elastic in the short run.

Answer

Demand will not change in the short run.

Question 51

The government wants to reduce the consumption of sugary drinks. Which of the following would be the most effective policy based on the concept of price elasticity?

Accepted Answer

Impose a high tax on sugary drinks.

Answer

Ban the sale of sugary drinks in schools.

Answer

Launch a public awareness campaign about the health risks of sugary drinks.

Answer

Provide subsidies for healthier beverage options.

Question 52

A new technology reduces the cost of producing solar panels. What is the likely impact on the price elasticity of supply for solar panels?

Accepted Answer

Supply will become more elastic.

Answer

Supply will remain unchanged.

Answer

The impact on supply elasticity is unpredictable.

Answer

Supply will become more inelastic.