Elasticity (PED/YED/XPED)

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

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 reduced.

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.

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

What can cause the supply curve for a product to shift to the right?

• an increase in demand for the product

• an increase in government subsidies to producers

• an increase in indirect taxes on the product

• an increase in the costs of production

XED measures the responsiveness of...

• demand for good X following a price change in good Y
• a price change in good Y after a change in demand for good X