Review - Unit 2.2 (Elasticity) - IBDP Economics HL

A product has a PED of 0.73. What do we call such a product?

• A price elastic product.

• A unit elastic product.

• A price inelastic product.

• It's not called anything special.

If consumption of a good decreases by 10% when its price goes up by 5% what is the value of the price elasticity of demand (PED)?

• 0.5

• 2

• 5

• 10

A company producing a very special type of musical instrument, the Alp horn, has close to a monopoly on the world market. Seeing an opportunity to earn money, several companies start to create substitutes such as the Rocky Mountain horn, the Sierra Nevada horn, the Andes horn and the Himalayas horn. What happens to the demand curve of the Alp horn?

• It becomes more elastic

• It becomes unitary elastic

• Nothing changes

• It becomes more inelastic

A company sells a good that has been measured to be price inelastic. How can it increase its revenues?

• Decrease the price

• Increase the price

• Revenues are already maximized

• Change production to a more price inelastic product

The price of good A decreases by 10%. As a result, the quantity demanded of good B increases by 20%. What is the cross price elasticity of demand?

• -2

• -0.5

• 0.5

• 2

A good that has an income elasticity of demand (YED) of 5.3. What can you say about the characteristics of the good?

• It is a complementary good

• It is a substitute good

• It is an inferior good

• It is a normal good

The quantity demanded of a good increases by 5% when income decreases by 2%. What is the

YED of this good?

• -2.5

• -0.4

• 0.4

• 2.5

After an increase of 10% in the price of a good, the quantity suplied by 25%. What is the PES of this good?

• 0.4

• 1

• 2

• 2.5

A company is very inefficient. It pays two workers to do a job which actually requires one worker. What do you expect the PES of this firm to be?

• Very inelastic.

• Unit elastic.

• Very elastic.

• We cannot say.

What is the range of possible values for the price elasticity of supply?

• Negative infinity to zero.

• Negative to positive infinity.

• 0 to 1.

• 0 to infinity.