Elasticity of Demand- Micro Topic 2.3

Mr. Clifford introduces elasticity, explaining how it measures the sensitivity of quantity demanded to price changes. He discusses inelastic demand using gasoline as an example, highlighting its few substitutes and necessity. Elastic demand is explained with its characteristics of having many substitutes and being a luxury. Unit elasticity is when the percentage change in quantity equals the percentage change in price. Perfectly inelastic and elastic demands are also covered. The total revenue test is introduced to show how price changes affect total revenue based on elasticity.

What does the law of demand state about the relationship between price and quantity?

• Price always remains constant.

• There is an inverse relationship.

• There is a direct relationship.

• Price and quantity are unrelated.

Why is gasoline considered to have inelastic demand?

• It has many substitutes.

• It is a luxury item.

• It is a necessity with few substitutes.

• Its price never changes.

What does it mean if a product has elastic demand?

• There are no substitutes available.

• Price is fixed regardless of demand.

• Quantity is sensitive to price changes.

• Quantity is insensitive to price changes.

What is the elasticity coefficient for unit elastic demand?

• Zero

• Exactly one

• Greater than one

• Less than one

What happens to total revenue when price increases for a product with inelastic demand?

• Total revenue fluctuates randomly.

• Total revenue decreases.

• Total revenue remains the same.

• Total revenue increases.

In the context of the total revenue test, what does it indicate if the price goes up and total revenue goes down?

• The demand is inelastic.

• The demand is perfectly inelastic.

• The demand is elastic.

• The demand is unit elastic.

Why do products with elastic demand often have sales?

• To increase total revenue by lowering prices.

• To eliminate competition.

• To decrease total revenue by raising prices.

• To maintain constant total revenue.