Elasticity and Its Application

What is elasticity?

• A measure of how buyers and sellers respond to changes in market conditions

• A measure of how supply decreases

• A measure of how demand increases

• A measure of how the price of a good changes

Which of the following statements is true for elastic demand?

• The quantity demanded changes insignificantly with a change in price

• The quantity demanded always remains constant

• The quantity demanded does not change with a change in price

• The quantity demanded changes significantly with a change in price

What happens to total revenue when the price of a good increases and demand is inelastic?

• Total revenue increases

• Total revenue decreases

• Total revenue fluctuates

• Total revenue remains unchanged

Which of the following factors affects the elasticity of demand?

• Seasonal changes

• Availability of close substitutes

• Number of producers

• Total quantity of goods in the market

Which of the following goods is likely to have inelastic demand?

• Medicines

• Luxury cars

• Cosmetics

• Toys

What is the price elasticity of supply?

• Measure of how demand for a product changes

• Measure of how producers' incomes change

• Measure of how the price of a product changes

• Measure of how the quantity supplied of a product changes with a change in price

Which of the following statements is true for goods with close substitutes?

• Demand for them is always constant

• Demand for them does not depend on price

• Demand for them is less elastic

• Demand for them is more elastic

Which of the following statements is true for goods that are necessities?

• The demand for them is less elastic

• The demand for them is always constant

• The demand for them does not depend on income

• The demand for them is more elastic

What method is best used to calculate elasticity between two points on the demand curve?

• Method of simple percentages

• Method of linear regression

• Method of finite differences

• Method of the midpoint

What happens to the elasticity of demand when the price of a good is high and the quantity is low?

• Elasticity of demand is greater than 1

• Elasticity of demand is less than 1

• Elasticity of demand is equal to 1

• Elasticity of demand is constant