Practice Questions
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Which of the following is NOT a determinant of price elasticity of demand?
Income level does not directly affect how much demand changes when prices change. Other options are incorrect because Many think substitutes don't mat...
Which of the following scenarios best illustrates perfectly elastic demand?
Perfectly elastic demand means that even a tiny price increase causes a huge drop in sales. Other options are incorrect because This option suggests t...
If the cross-price elasticity of demand between two goods A and B is positive, what does this imply about the nature of these goods when demand for good A is inelastic?
When the cross-price elasticity is positive, it means that as the price of good A goes up, people buy more of good B. Other options are incorrect beca...
If the income elasticity of demand for a good is equal to 1 and the price elasticity of demand is unit elastic, what does this imply about the good when income increases?
When income goes up, the amount people want to buy also goes up by the same percentage. Other options are incorrect because Some might think a good is...
If the cross-price elasticity of demand between two goods is positive, what can be inferred about the nature of the relationship between these goods, and how might this impact market dynamics if the demand for one good becomes unit elastic?
When two goods have a positive cross-price elasticity, it means they are substitutes. Other options are incorrect because This answer suggests that th...
What is the formula for calculating the price elasticity of demand?
The correct formula shows how much the quantity people want to buy changes when the price changes. Other options are incorrect because This option mix...
What does a positive income elasticity of demand indicate about a good?
A positive income elasticity means that as people earn more money, they buy more of this good. Other options are incorrect because Some might think th...
What does a positive cross-price elasticity of demand indicate about two goods?
A positive cross-price elasticity means that when the price of one good goes up, the demand for the other good also goes up. Other options are incorre...
Arrange the following steps in the correct order to analyze the impact of price changes on total revenue using elasticity concepts: 1) Determine the price elasticity of demand for the product, 2) Predict how quantity demanded will change in response to a price change, 3) Calculate the new total revenue based on the quantity demanded and the new price, 4) Assess whether the demand is elastic or inelastic.
First, you need to find out how sensitive demand is to price changes. Other options are incorrect because This option suggests predicting changes befo...
A company lowers the price of a product and notices that total revenue increases. What does this indicate about the product's price elasticity of demand?
When the price goes down and revenue goes up, it means people buy a lot more. Other options are incorrect because Some might think that lower prices d...
Price elasticity of demand is to sensitivity of quantity demanded as income elasticity is to what?
Income elasticity measures how much the quantity demanded changes when consumer income changes. Other options are incorrect because This option confus...
If a significant decrease in the price of a product leads to a proportionally larger increase in quantity demanded, what can be inferred about the price elasticity of demand for that product?
When the price drops a lot and people buy much more, it shows that demand is elastic. Other options are incorrect because Inelastic demand means that ...
In economics, the measure of how much the quantity demanded responds to a change in price is known as _________.
This term shows how much people buy when prices change. Other options are incorrect because This measures how demand changes when people's income chan...
A sudden increase in the price of coffee leads to a notable decrease in the quantity demanded of sugar. How would you classify the relationship between coffee and sugar based on elasticity concepts?
Coffee and sugar are complements. Other options are incorrect because Some might think coffee and sugar are substitutes, but they are not; This option...
If the price of a substitute good decreases, how is the demand for the original good likely to be affected?
When a substitute good gets cheaper, people will buy it instead of the original good. Other options are incorrect because Some might think that higher...
Which of the following statements accurately describe the concepts of elasticity in economics? Select all that apply.
Other options are incorrect because Some think high price elasticity means no change in demand; This suggests income elasticity only affects normal go...
A local coffee shop reduces the price of its lattes from $5 to $4. Following this price cut, the shop notices that the quantity demanded for lattes increases significantly, resulting in an overall increase in total revenue. What can be concluded about the price elasticity of demand for lattes based on this scenario?
When the price of lattes went down, more people wanted to buy them. Other options are incorrect because This option suggests that lowering prices woul...
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