Econ 3.3 review

What is price elasticity of demand?

• The degree to which quantity demanded changes in response to a price change

• The total revenue earned by a firm

• The relationship between supply and demand

• The cost of production for a firm

When demand is elastic, a decrease in price will:

• Decrease total revenue

• Have no effect on total revenue

• Increase total revenue

• Keep quantity demanded constant

Which of the following products is likely to be most elastic?

• Insulin for diabetic patients

• Designer handbags

• Water

• Heart medication

The formula for calculating price elasticity of demand is:

• Change in price divided by change in quantity

• Percentage change in quantity demanded divided by percentage change in price

• Total revenue divided by price

• Price multiplied by quantity

When the price elasticity of demand equals 1, demand is:

• Perfectly inelastic

• Elastic

• Unitary elastic

• Perfectly elastic

In which case would total revenue decrease if price increases?

• When demand is inelastic

• When demand is elastic

• When demand is unitary elastic

• When demand is constant

Which factor does NOT affect price elasticity of demand?

• The number of available substitutes

• The color of the product packaging

• Time period for consumer adjustment

• Proportion of income spent on the good

A product has a price elasticity of demand of 0.3. This means:

• The product is elastic

• The product is inelastic

• The product has unitary elasticity

• The product has perfect elasticity

Firms can maximize revenue by:

• Always charging the highest possible price

• Setting prices based on elasticity of demand

• Maintaining constant prices

• Ignoring consumer response to price changes

Which time period typically shows greater elasticity?

• Short run

• Long run

• Both show equal elasticity

• Neither shows elasticity