Q.1 What does the price elasticity of demand measure?
The responsiveness of quantity demanded to changes in price
The responsiveness of price to changes in demand
The responsiveness of supply to changes in demand
The responsiveness of income to changes in consumption
Explanation - Price elasticity of demand shows how much the quantity demanded changes when the price of a good changes.
Correct answer is: The responsiveness of quantity demanded to changes in price
Q.2 If demand is perfectly inelastic, the elasticity coefficient is:
0
1
Greater than 1
Infinite
Explanation - Perfectly inelastic demand means that quantity demanded does not change with price, hence elasticity is zero.
Correct answer is: 0
Q.3 If a product has many substitutes, its demand is likely to be:
Inelastic
Perfectly inelastic
Elastic
Unitary elastic
Explanation - Availability of substitutes makes consumers more responsive to price changes, leading to elastic demand.
Correct answer is: Elastic
Q.4 When demand is unitary elastic, a fall in price will:
Increase total revenue
Decrease total revenue
Leave total revenue unchanged
Double total revenue
Explanation - In unitary elasticity, the percentage change in quantity demanded equals the percentage change in price, keeping revenue constant.
Correct answer is: Leave total revenue unchanged
Q.5 The formula for price elasticity of demand is:
% Change in Price / % Change in Quantity Demanded
% Change in Quantity Demanded / % Change in Price
% Change in Income / % Change in Quantity Demanded
% Change in Quantity Supplied / % Change in Price
Explanation - Price elasticity of demand measures the percentage change in quantity demanded relative to a percentage change in price.
Correct answer is: % Change in Quantity Demanded / % Change in Price
Q.6 If the elasticity coefficient is greater than 1, demand is:
Inelastic
Elastic
Perfectly inelastic
Unitary elastic
Explanation - Elastic demand occurs when quantity demanded is highly responsive to price changes, with elasticity greater than 1.
Correct answer is: Elastic
Q.7 Which of the following goods is most likely to have inelastic demand?
Luxury watches
Medicines
Sports cars
Movie tickets
Explanation - Medicines are necessities with few substitutes, so demand is less responsive to price changes.
Correct answer is: Medicines
Q.8 If a 10% rise in price leads to a 20% fall in demand, elasticity is:
0.5
2
1
Infinite
Explanation - Elasticity = % change in demand / % change in price = 20/10 = 2, showing elastic demand.
Correct answer is: 2
Q.9 Cross elasticity of demand measures:
Response of demand for one good to price change of another
Response of supply to change in demand
Response of demand to change in income
Response of demand to price of same good
Explanation - Cross elasticity shows how demand for a good changes when the price of a related good changes.
Correct answer is: Response of demand for one good to price change of another
Q.10 If the cross elasticity between tea and coffee is positive, they are:
Complements
Substitutes
Unrelated goods
Inferior goods
Explanation - A positive cross elasticity indicates that an increase in the price of one good increases the demand for another, showing substitution.
Correct answer is: Substitutes
Q.11 Income elasticity of demand for inferior goods is:
Positive
Negative
Zero
Infinite
Explanation - As income increases, demand for inferior goods decreases, giving a negative income elasticity.
Correct answer is: Negative
Q.12 Which type of elasticity is useful for classifying goods into normal and inferior?
Price elasticity
Cross elasticity
Income elasticity
Supply elasticity
Explanation - Income elasticity helps identify whether a good is normal (positive elasticity) or inferior (negative elasticity).
Correct answer is: Income elasticity
Q.13 Which of the following is an example of a perfectly elastic supply curve?
Vertical line
Horizontal line
Upward sloping line
Downward sloping line
Explanation - Perfectly elastic supply means suppliers will supply any amount at a fixed price, shown by a horizontal curve.
Correct answer is: Horizontal line
Q.14 In the short run, supply is often:
Perfectly elastic
Perfectly inelastic
Unitary elastic
More elastic than in the long run
Explanation - In the short run, firms may not be able to adjust supply, making it inelastic.
Correct answer is: Perfectly inelastic
Q.15 Elasticity of supply depends on:
Number of substitutes
Production capacity
Consumer income
Cross price effects
Explanation - If producers can easily expand production, supply will be more elastic.
Correct answer is: Production capacity
Q.16 When elasticity of demand is less than 1, demand is:
Elastic
Inelastic
Perfectly elastic
Unitary elastic
Explanation - Inelastic demand means quantity demanded is relatively unresponsive to price changes, with elasticity < 1.
Correct answer is: Inelastic
Q.17 If the elasticity of supply is 0, supply is:
Perfectly elastic
Elastic
Perfectly inelastic
Unitary elastic
Explanation - Perfectly inelastic supply means suppliers cannot change quantity supplied regardless of price.
Correct answer is: Perfectly inelastic
Q.18 Which factor makes demand more elastic?
Necessity of good
Short time period
Availability of close substitutes
Addictive nature
Explanation - Substitutes give consumers alternatives, making them more responsive to price changes.
Correct answer is: Availability of close substitutes
Q.19 Price elasticity of demand for salt is likely to be:
Elastic
Inelastic
Perfectly elastic
Unitary elastic
Explanation - Salt is a necessity with no substitutes, so consumers buy it regardless of price changes.
Correct answer is: Inelastic
Q.20 The slope of the demand curve and elasticity are:
The same
Always opposite
Related but not identical
Completely unrelated
Explanation - Slope measures absolute change while elasticity measures percentage change, so they are related but not identical.
Correct answer is: Related but not identical
Q.21 For luxury goods, income elasticity of demand is usually:
Greater than 1
Equal to 1
Less than 1
Zero
Explanation - Demand for luxury goods rises more than proportionally with income, giving an income elasticity > 1.
Correct answer is: Greater than 1
Q.22 If supply is elastic, a small rise in price will cause:
Large fall in supply
Large rise in supply
No change in supply
Small rise in supply
Explanation - Elastic supply means producers respond strongly to price increases by raising output significantly.
Correct answer is: Large rise in supply
Q.23 Arc elasticity of demand is used when:
We want exact elasticity at one point
We want elasticity over a range of prices
Supply is constant
Income is constant
Explanation - Arc elasticity measures average elasticity between two points on the demand curve.
Correct answer is: We want elasticity over a range of prices
Q.24 The demand for necessities is generally:
Elastic
Inelastic
Perfectly elastic
Highly elastic
Explanation - Necessities are less sensitive to price changes, hence inelastic demand.
Correct answer is: Inelastic
Q.25 Which of the following best explains why supply is more elastic in the long run?
Producers have more substitutes
Consumers earn more income
Producers can adjust capacity
Prices fall over time
Explanation - In the long run, producers can expand factories or enter new industries, making supply more elastic.
Correct answer is: Producers can adjust capacity