Price Elasticity and Supply and Demand

What is price elasticity of demand?

• A measure of how reactive the marketplace is to a change in price for a given product

• A measure of how reactive the marketplace is to a change in supply for a given product

• A measure of how reactive the marketplace is to a change in demand for a given product

• A measure of how reactive the marketplace is to a change in consumer behavior

How is price elasticity of demand calculated?

• By dividing the percent change in consumption by the percent change in price

• By dividing the percent change in price by the percent change in consumption

• By multiplying the percent change in consumption by the percent change in price

• By subtracting the percent change in consumption from the percent change in price

What does a price elasticity of demand score higher than 1 indicate?

• High elasticity, meaning demand is greatly influenced by price change

• Low elasticity, meaning demand is not influenced by price change

• Perfectly inelastic, meaning price changes have no impact on demand

• No change in demand regardless of price

What does a price elasticity of demand score between 0 and 1 indicate?

• Inelastic, since variation in price has only a small impact on demand

• Elastic, since variation in price has a large impact on demand

• Perfectly inelastic, meaning price changes have no impact on demand

• No change in demand regardless of price

What types of goods typically have higher price elasticity of demand?

• Luxury items that are not essential to day-to-day living

• Household items or bare necessities

• Goods with no substitutes available

• Goods with complex production processes

What is price elasticity of supply?

• The change in production relative to a change in price

• The change in price relative to a change in production

• The change in demand relative to a change in price

• The change in price relative to a change in demand

What factors influence price elasticity of supply?

• Duration of the price change, availability of substitutes, company's capacity for increased production, stock availability, complexity of production

• Duration of the price change, availability of substitutes, consumer behavior, stock availability, complexity of production

• Duration of the price change, availability of substitutes, company's capacity for increased production, consumer behavior, complexity of production

• Duration of the price change, availability of substitutes, company's capacity for increased production, stock availability, consumer behavior

What does a high price elasticity of supply indicate?

• The company can increase production to maximize profits

• The company should decrease production to maximize profits

• The company should keep production levels constant to maximize profits

• The company should stop production to maximize profits

What type of product is likely to have a higher price elasticity of supply?

• A product that is not overly complicated to manufacture and has few raw materials

• A product that is complex to manufacture and requires many raw materials

• A product that is lightweight and easy to ship

• A product that is heavy and difficult to ship

What are some factors that may limit a small business from increasing supply despite high price elasticity?

• Difficulty ramping up production, dealing with increased shipping and delivery activity

• Availability of substitutes, consumer behavior, complexity of production

• Duration of the price change, stock availability, company's capacity for increased production

• Availability of substitutes, complexity of production, consumer behavior