1.8, 1.9

What does the Price Elasticity of Demand (PED) measure?

• The percentage change in price due to a change in quantity demanded

• The responsiveness of quantity demanded to a change in price

• The total revenue generated by a firm

• The difference between supply and demand

If a 10% increase in price causes a 20% decrease in quantity demanded, what type of demand elasticity is this?

• Unit elastic

• Perfectly inelastic

• Relatively elastic

• Relatively inelastic

Which of the following characteristics describe inelastic demand?

• a) Buyers are highly responsive to price changes

• b) Total revenue decreases when prices increase

• c) Quantity demanded changes by a smaller proportion than the price change

• d) The percentage change in quantity demanded is greater than the percentage change in price

Which determinant makes demand more elastic?

• The good is a necessity

• The good has many substitutes

• The good has a low proportion of income spent on it

• The good has no substitutes

How does the Price Elasticity of Supply (PES) differ from PED?

• PES measures the responsiveness of quantity supplied to price changes

• PES is always greater than 1

• PES is used only for essential goods

• PES measures changes in consumer behaviour

Which factor increases the elasticity of supply?

• Perishability of goods

• Limited production capacity

• Availability of spare capacity

• Short-term production constraints

Why do governments impose higher taxes on goods with inelastic demand?

• To discourage consumption of socially harmful goods

• To increase the availability of those goods

• To make goods more price elastic

• To reduce production costs

What defines market failure?

• A situation where firms maximize profits

• A market where supply and demand are perfectly balanced

• A situation where resources are not allocated efficiently, reducing societal well-being

• A market where prices remain constant

Which of the following is an example of negative externality?

• Education leading to a more skilled workforce

• Factory pollution affecting nearby residents

• Government subsidies for healthcare

• Increased consumer spending boosting the economy

How can governments correct market failure caused by positive externalities?

• Imposing indirect taxes on beneficial goods

• Increasing production costs through regulation

• Providing subsidies or direct provision of services

• Reducing public education campaigns