Understanding Price Elasticity of Demand

What does price elasticity of demand measure?

• The responsiveness of supply to a change in price

• The responsiveness of demand to a change in price

• The change in price due to a change in demand

• The change in demand due to a change in supply

If the price elasticity of demand is greater than 1, the demand is considered to be:

• Inelastic

• Elastic

• Unitary elastic

• Perfectly inelastic

Which of the following is a formula for calculating price elasticity of demand?

If a product has a price elasticity of demand of 0.5, how is the demand described?

• Elastic

• Inelastic

• Unitary elastic

• Perfectly elastic

Which of the following factors does NOT affect the price elasticity of demand?

• Availability of substitutes

• Necessity of the product

• price of the product

• Cost of production

A product with many close substitutes is likely to have:

• Elastic demand

• Inelastic demand

• Unitary elastic demand

• Perfectly inelastic demand

If a 10% increase in price leads to a 5% decrease in quantity demanded, what is the price elasticity of demand?

• 0.5

• 1

• 2

• 5

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

• Luxury cars

• Salt

• Designer clothing

• Smartphones

What happens to total revenue when the price of an elastic good is increased?

• Total revenue increases

• Total revenue decreases

• Total revenue remains unchanged

• Total revenue becomes zero

If a product's demand is inelastic, what is the effect of a price decrease on total revenue?

• Total revenue increases

• Total revenue decreases

• Total revenue remains unchanged

• Total revenue becomes zero