Unit 3 Day 3 Questions

What is the definition of price elasticity of demand?

• The responsiveness of supply to changes in price

• The responsiveness of quantity demanded to changes in price

• The total revenue earned by a firm

• The cost of producing one more unit

Which of the following best describes inelastic demand?

• Quantity demanded changes greatly with price

• Quantity demanded changes little with price

• Price remains constant regardless of demand

• Demand is perfectly responsive to price

Which of the following is an example of a good with inelastic demand?

• Designer handbags

• Insulin for diabetics

• Luxury cars

• Airline tickets for vacations

Which of the following goods is most likely to have elastic demand?

• Salt

• Gasoline in the short run

• Restaurant meals

• Water

If the price of a product increases and total revenue decreases, what can be said about the demand for the product?

• Demand is inelastic

• Demand is elastic

• Demand is unitary elastic

• Demand is perfectly inelastic

Which of the following is NOT a characteristic of inelastic goods?

• Few or no substitutes

• Necessities

• Large portion of income spent

• Steep demand curve

Which of the following is most likely to be an inelastic good?

• Movie tickets

• Bread

• Diamonds

• Sports cars

A government is considering taxing a good. Why might it prefer to tax a good with inelastic demand rather than elastic demand?

• To reduce consumption significantly

• To increase total revenue with minimal reduction in quantity sold

• To encourage substitutes

• To make the good more affordable

Suppose the price of a necessity like electricity rises. What is the likely effect on the quantity demanded?

• It will increase significantly

• It will decrease slightly

• It will remain unchanged

• It will decrease to zero

A company sells a product with elastic demand. What should it do to increase total revenue?

• Increase the price

• Decrease the price

• Keep the price unchanged

• Reduce production