Quiz on Price Elasticity of Demand

What is the price elasticity of demand?

• A measure of consumer income levels

• A measure of the responsiveness of purchase decisions to variations in price

• A measure of the quantity of goods produced

• A measure of the total revenue generated from sales

If a 1 percent rise in the price of a good causes a 2 percent reduction in quantity demanded, what is the price elasticity of demand?

• -1

• -2

• 2

• 1

What does it mean if the price elasticity of demand is (in absolute terms) greater than 1?

• Demand is unit elastic

• Demand is perfectly inelastic

• Demand is inelastic

• Demand is elastic

What happens to total revenue if the price elasticity of demand is (in absolute terms) less than 1 and the price increases?

• Total revenue decreases

• Total revenue remains unchanged

• Total revenue increases

• Total revenue fluctuates

Which of the following factors increases the price elasticity of demand?

• Availability of close substitutes

• Higher budget share

• All of the above

• Longer time period for adjustment

If the cross-price elasticity of demand is positive, what does it indicate about the two goods?

• They are substitutes

• They are unrelated

• They are inferior goods

• They are complements

What is the effect of a price reduction on total expenditure if the price elasticity of demand is (in absolute terms) greater than 1?

• Total expenditure decreases

• Total expenditure fluctuates

• Total expenditure increases

• Total expenditure remains unchanged

Would the cross-price elasticity of demand be positive or negative for the following pairs of goods:

Apples and orange

• POSITIVE

• NEGATIVE

Would the cross-price elasticity of demand be positive or negative for the following pairs of goods:

Airline tickets and automobile tires

• POSITIVE

• NEGATIVE

Would the cross-price elasticity of demand be positive or negative for the following pairs of goods:

Computer hardware and software

• POSITIVE

• NEGATIVE