Understanding Price Elasticity of Demand

What does Price Elasticity of Demand (PED) measure?

• The responsiveness of supply to a change in price

• The responsiveness of demand to a change in income

• The responsiveness of demand to a change in price

• The responsiveness of price to a change in demand

If PED is -1.5, demand is considered:

• Perfectly elastic

• Elastic

• Inelastic

• Unitary elastic

A PED value of 0 indicates:

• Perfect elasticity

• Perfect inelasticity

• Unitary elasticity

• Elastic demand

When demand is inelastic, how does the percentage change in quantity demanded compare to the percentage change in price?

• It is greater

• It is equal

• It is smaller

• There is no relationship

Which of the following is likely to have an inelastic demand?

• Luxury goods

• Necessities

• Branded goods

• Substitute goods

If the PED for a product is -0.5, a 10% increase in price will lead to:

• 5% decrease in quantity demanded

• 5% increase in quantity demanded

• 20% decrease in quantity demanded

• No change in quantity demanded

Which of the following will cause demand to be more elastic?

• The product is a necessity

• There are many substitutes available

• The product has no close substitutes

• The product is a small proportion of consumer spending

If a good has a PED of -2.0, the demand is:

• Perfectly elastic

• Elastic

• Inelastic

• Unitary elastic

A rise in the price of a product with elastic demand will:

• Increase total revenue

• Decrease total revenue

• Have no impact on total revenue

• Increase quantity demanded

Which formula is used to calculate PED?

• % Change in Quantity Supplied / % Change in Price

• % Change in Quantity Demanded / % Change in Income

• % Change in Quantity Demanded / % Change in Price

• % Change in Price / % Change in Quantity Demanded