Elasticity Concepts and Government Intervention Quiz

Which of the following best describes "Price Elasticity of Demand (PED)" ?

• The relationship between supply and government intervention

• The responsiveness of quantity demanded to changes in price

• The calculation of national income

• The impact of subsidies on producers

Which of the following best describes what the law of demand provides information about?

• The direction of change in quantity demanded given a change in price

• The exact amount by which quantity demanded will change

• The income levels of consumers

• The government intervention in markets

Which of the following best describes the effect of a 25% rise in price (from $4 to $5) on the quantity demanded when demand is price inelastic, as shown in Figure 1(b)?

• Quantity demanded falls by 10% (from 100 to 90)

• Quantity demanded falls by 25% (from 100 to 75)

• Quantity demanded rises by 10% (from 90 to 100)

• Quantity demanded remains unchanged

Suppose you are comparing two linear demand curves at the same price level. Which statement is most accurate according to the material?

• The flatter demand curve is relatively more price elastic

• The steeper demand curve is always price elastic

• Both curves have the same price elasticity at all price levels

• The steeper demand curve is always price elastic

Which of the following best describes unitary price elastic demand?

• A change in price results in a proportionate change in quantity demanded.

• A change in price results in no change in quantity demanded.

• A change in price results in an infinite change in quantity demanded.

• A change in price results in a less than proportionate change in quantity demanded.

According to the diagram for perfectly price elastic demand, what happens if the price rises above $6?

• Quantity demanded increases to infinity

• Quantity demanded falls to zero

• Quantity demanded remains unchanged

• Quantity demanded decreases by 25%

Explain how the concept of perfectly price elastic demand can be applied to a real-world market scenario. Use reasoning and evidence to support your answer.

• In a market with many identical sellers, if one seller raises the price even slightly, buyers will purchase from other sellers, causing the quantity demanded from the first seller to drop to zero.

• In a monopoly, the seller can raise prices without losing any customers.

• In a market with inelastic demand, a price increase leads to a small decrease in quantity demanded.

• In a market with unitary elasticity, a price increase leads to a proportionate decrease in quantity demanded.

Suppose the price of a car increases by 50%. Why is the demand for cars considered price elastic?

• Because cars take up a large proportion of consumers' income, making consumers more responsive to price changes.

• Because cars are necessities.

• Because the supply of cars is limited.

• Because cars are always in high demand.

Using the information provided, explain how the proportion of income spent on a good affects its price elasticity of demand. Provide an example to support your answer.

• The larger the proportion of income spent on a good, the more price elastic the demand; for example, cars.

• The larger the proportion of income spent on a good, the less price elastic the demand; for example, salt.

• The smaller the proportion of income spent on a good, the more price elastic the demand; for example, bus rides.

• The proportion of income spent on a good does not affect its price elasticity of demand.

A 50% increase in the price of water is likely to result in which of the following outcomes, and why?

• A large decrease in quantity demanded because water is a luxury.

• A small decrease in quantity demanded because water is a necessity.

• No change in quantity demanded because water is not consumed.

• A large increase in quantity demanded because people want more water.