Understanding Price Elasticity of Demand

What does the price elasticity of demand (PED) measure?

• The cost of production

• The responsiveness of demand to a change in price

• The change in price due to supply

• The relationship between income and supply

If PED is greater than 1, demand is:

• Inelastic

• Perfectly elastic

• Elastic

• Unit elastic

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

• Availability of substitutes

• Time period

• Cost of production

• Necessity vs luxury

When demand is price inelastic, increasing the price will:

• Reduce total revenue

• Increase total revenue

• Have no effect on revenue

• Eliminate demand

A negative income elasticity of demand indicates a:

• Normal good

• Luxury good

• Giffen good

• Inferior good

Cross elasticity of demand (XED) between substitutes is:

• Zero

• Positive

• Negative

• Always one

In the short run, at least one factor of production is:

• Variable

• Fixed

• Increasing

• Zero

Which cost curve always declines as output increases?

• Total cost

• Marginal cost

• Average variable cost

• Average fixed cost

In the long run, all factors of production are:

• Fixed

• Variable

• Non-existent

• Costly

Profit is calculated by:

• Revenue - Tax

• Output x Price

• Total revenue - Total cost

• Price + Cost