PED & PES

A demand curve for a product shows the relationship between its price and

• cost of production

• population changes

• the income of the consumer

• the quantity of the product consumed

A firm produces a good with a price elasticity of demand greater than 1. What must the firm experience if there is a fall in the price of this good?

• a decrease in costs

• a decrease in sales

• an increase in revenue

• an increase in profits

Due to good weather, there is a surplus in the market for an agricultural product. Which change would cause the market to return to equilibrium?

• a decrease in demand

• a fall in price

• an increase in supply

• a rise in price

What could cause the demand for a product to become more price-elastic?

• a smaller proportion of income being spent on the product

• more substitutes coming onto the market

• the product becoming more of a necessity

• the product falling in price

When the price of a product rises from $10 to $15, the demand falls from 5000 to 4000 units. What is the value of the price elasticity of demand for the product?

• 0.2

• 0.4

• 1.5

• 2.5

The price elasticity of demand for Japanese video-recorders on sale in Germany is price-elastic. Which statement will therefore be true?

• A tariff will keep all the Japanese video-recorders out of Germany.

• German manufacturers cannot compete in the video-recorder market.

• Japanese manufacturers’ profits will decrease if the price is reduced.

• Japanese manufacturers’ revenue from sales will increase if the price is reduce

When a price of a good doubles the demand falls by more than half, and the revenue received by the seller falls. What does this suggest about the good?

• It has substitutes.

• It is a necessity.

• It is perfectly elastic in demand.

• It is in fixed supply.

Terrorist action in some countries has resulted in tourists cancelling their holidays. Governments have removed airport taxes to encourage tourism. The diagram shows demand and supply of these holidays. The original equilibrium was X. What is the new equilibrium?

• A

• B

• C

• D

What can be concluded from the demand curve for the product shown in the diagram?

• Price increases will raise the producers’ revenue.

• Producers are unable to respond to a price rise.

• The product is one with many substitutes.

• There are 20 people able to buy the product.

A mobile (cell) phone operator increases the price of making calls on its network. After the price increase, the revenue of the mobile phone operator falls by 10%. What is the price elasticity of demand (PED) for the mobile operator’s service?

• elastic

• inelastic

• perfectly elastic

• unit elastic