Chapter 5 Elasticity and Its Application_PE

What does elasticity measure in economics?

• The market share of a product

• The fixed costs of production

• The total revenue generated from sales

• The responsiveness of quantity demanded or supplied

What is the formula for price elasticity of demand?

• Total revenue divided by quantity sold

• Quantity demanded divided by total market demand

• Percentage change in quantity demanded divided by percentage change in price

• Percentage change in price divided by percentage change in quantity demanded

What characterizes elastic demand?

• Quantity demanded responds substantially to price changes

• Quantity demanded responds slightly to price changes

• Total revenue decreases with price increases

• Price remains constant regardless of demand

Which of the following is a determinant of price elasticity of demand?

• Availability of close substitutes

• Total revenue generated

• Consumer income levels

• Market share of the product

What type of goods typically have inelastic demand?

• Complements

• Substitutes

• Necessities

• Luxuries

What happens to total revenue when demand is elastic and price increases?

• Total revenue fluctuates unpredictably

• Total revenue remains constant

• Total revenue increases

• Total revenue decreases

What is the price elasticity of demand when it is perfectly inelastic?

• Less than 1

• Infinity

• 1

• 0

What does a positive cross-price elasticity of demand indicate?

• Goods are luxuries

• Goods are complements

• Goods are substitutes

• Goods are necessities

What is the income elasticity of demand for normal goods?

• Negative

• Undefined

• Zero

• Positive

What is the effect of a price increase on total revenue when demand is inelastic?

• Total revenue fluctuates

• Total revenue increases

• Total revenue remains unchanged

• Total revenue decreases