Understanding Price Elasticity

What does price elasticity of demand (PED) measure?

• How much demand changes in response to a change in supply

• How much quantity demanded changes in response to a change in price

• How much price changes in response to demand fluctuations

• How much supply changes due to price variations

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

• Luxury handbags

• Airline tickets

• Insulin

• Branded trainers

If the price of a good falls by 10% and quantity demanded rises by 20%, what is the PED?

• 0.5

• 1

• 2

• -2

What is the significance of a PED value greater than 1?

• Demand is inelastic

• Demand is perfectly inelastic

• Demand is elastic

• Demand is unitary elastic

If a firm wants to increase total revenue and its product has an inelastic demand, it should:

• Lower the price

• Increase the price

• Keep the price unchanged

• Increase production

What does price elasticity of supply (PES) measure?

• How price changes when supply increases

• The responsiveness of quantity supplied to changes in price

• How demand changes in response to supply changes

• The impact of production costs on demand

Which of the following factors is most likely to make supply more elastic?

• A longer time period for production

• High storage costs

• Limited availability of raw materials

• A short production time

A PES value of zero means that supply is:

• Perfectly inelastic

• Perfectly elastic

• Unit elastic

• Relatively elastic

If the price of a product increases by 15% and quantity supplied increases by 30%, what is the PES?

• 0.5

• 1

• 2

• -2

A key difference between price elasticity of demand and supply is that:

• PED always increases over time, while PES remains constant

• PES is always greater than PED

• Supply tends to be more elastic in the long run, while demand is more elastic in the short run

• Demand tends to be more elastic in the long run, while supply is more elastic in the long run