Price and Income Elasticity of Demand

Multiple Choice

The price elasticity of demand for a product is -0.8. If the price of the product increases by 10%, the quantity demanded will:

• Increase by 8%

• Decrease by 8%

• Increase by 0.8%

• Decrease by 0.8%

Multiple Choice

The price elasticity of demand is calculated using the formula $$\frac{\% \text{ change in quantity demanded}}{\% \text{ change in price}}$$ . If the percentage change in quantity demanded is $$-20\%$$ and the percentage change in price is $$10\%$$ , what is the elasticity?

• $$-0.5$$

• $$-1$$

• $$-1.5$$

• $$-2$$

Fill in the Blanks

A consumer purchases 20 units of a commodity when its price was Rs 4 per unit. He purchased 30 units of it when its price fell to Rs 3 per unit. What is the price elasticity of demand for the commodity?

Multiple Choice

What does a price elasticity of demand (PED) of 0 indicate about the quantity demanded?

• Perfectly elastic

• Perfectly inelastic

• Unitary elastic

• Elastic

Multiple Choice

What does PED = ∞ indicate about the demand for a product?

• Perfectly inelastic

• Perfectly elastic

• Unitary elastic

• Elastic

Multiple Choice

Your favorite snack has a sudden price increase of $2. You are forced to settle for a substitute cheaper snack. The demand for your favorite snack is

• Inelastic

• Elastic

• Unitary Elastic

• Ceteris Paribus

Multiple Choice

If the price of gas goes up and total revenue goes up, what does that say about the elasticity of gas?

• Gas is Elastic

• Gas is Inelastic

• Gas is Unitary Elastic

Multiple Choice

What does the diagram illustrate about price elasticity of demand?

• It shows that demand is perfectly elastic

• It shows that demand is unitary elastic

• It shows that demand is inelastic

• It shows that demand is increasing

Multiple Choice

The owner of a hamburger stand is thinking about raising the price of a hamburger from $3.00 to $5.00. Based on the table, what can the owner expect about demand in that case?

• Demand will increase revenue.

• Demand will be elastic.

• Demand will be inelastic.

• Demand will be unitary elastic.

Multiple Choice

What are the primary determinants of price elasticity of demand (PED)?

• Substitutes

• Proportion of income

• Luxury vs Necessity

• Addictive

Multiple Choice

If a 10% increase in income leads to a 5% increase in the quantity demanded of a good, the income elasticity of demand is:

• 0.5

• 1

• 1.5

• 2

Multiple Choice

Which of the following statements is true about income elasticity of demand?

• It is always positive for inferior goods

• It is always negative for normal goods

• It can be positive or negative depending on the type of good

• It is always zero for luxury goods

Multiple Choice

What does a positive YED value signify?

• An inferior good

• A normal good

• A necessity

• A luxury good

Multiple Choice

What type of good is represented by the graph that shows a decrease in spending as income increases?

• Normal good

• Luxury good

• Inferior good

• Substitute good

Multiple Choice

What does the graph labeled 'Unitary elastic' indicate about the relationship between income and quantity demanded?

• YED > 1

• YED = 1

• YED < 1

• YED < 0

Multiple Choice

What is the formula for calculating Income Elasticity of Demand (YED)?

• YED = % Change in Quantity Demanded / % Change in Income

• YED = % Change in Income / % Change in Quantity Demanded

• YED = % Change in Price / % Change in Quantity Demanded

• YED = % Change in Quantity Supplied / % Change in Income