multiple-choice questions on elasticity of supply and demand:

tough and highly challenging multiple-choice questions on elasticity of supply and demand:

1. **Price Elasticity of Demand**:

   Question: If the price of a luxury item increases by 20%, and the quantity demanded decreases by 10%, what is the price elasticity of demand for the luxury item?

   a) 0.5

   b) 1.0

   c) 1.5

   d) 2.0

   Correct Answer: c) 1.5

2. **Income Elasticity of Demand**:

   Question: If an increase in consumer income leads to a 12% increase in the quantity demanded for a normal good, what is the income elasticity of demand for the good?

   a) 0.12

   b) 0.5

   c) 1.0

   d) 1.5

   Correct Answer: d) 1.5

3. **Cross-Price Elasticity of Demand**:

   Question: If the cross-price elasticity of demand between two goods is -0.6, what can be inferred about the relationship between these goods?

   a) They are complements.

   b) They are substitutes.

   c) They are unrelated.

   d) They are luxury goods.

   Correct Answer: a) They are complements.

4. **Elasticity and Tax Incidence**:

   Question: In a market with perfectly elastic demand, who bears the entire burden of a tax on the product?

   a) Consumers.

   b) Producers.

   c) Both consumers and producers share the burden equally.

   d) Neither consumers nor producers bear the burden.

   Correct Answer: a) Consumers.

5. **Price Elasticity and Total Revenue**:

   Question: A business wants to maximize total revenue for its product. If the price elasticity of demand for the product is -1.2, what should the business do with its prices?

   a) Increase prices.

   b) Decrease prices.

   c) Keep prices constant.

   d) Total revenue cannot be maximized with this elasticity.

   Correct Answer: b) Decrease prices.

6. **Income Elasticity and Inferior Goods**:

   Question: If the income elasticity of demand for a good is negative, what type of good is it, and what can be said about consumer behavior as income increases?

   a) It is an inferior good, and as income increases, quantity demanded decreases.

   b) It is a normal good, and as income increases, quantity demanded increases.

   c) It is a luxury good, and as income increases, quantity demanded increases.

   d) It is an unrelated good, and income has no effect on quantity demanded.

   Correct Answer: a) It is an inferior good, and as income increases, quantity demanded decreases.

7. **Price Elasticity and Necessities**:

   Question: Which of the following goods is more likely to have a price elasticity of demand less than 1, a necessity or a luxury good?

   a) Necessity.

   b) Luxury.

   c) They have the same elasticity.

   d) It depends on consumer preferences.

   Correct Answer: a) Necessity.

8. **Elasticity and Short-Run vs. Long-Run**:

   Question: In the context of supply elasticity, what is typically true in the short run compared to the long run?

   a) Short-run supply is more elastic.

   b) Short-run supply is less elastic.

   c) Long-run supply is more elastic.

   d) Long-run supply is inelastic.

   Correct Answer: b) Short-run supply is less elastic.

9. **Elasticity and Time Horizon**:

   Question: How does the time horizon affect the elasticity of supply for most goods?

   a) Elasticity of supply increases in the short run.

   b) Elasticity of supply increases in the long run.

   c) Elasticity of supply decreases in the short run.

   d) Elasticity of supply decreases in the long run.

   Correct Answer: b) Elasticity of supply increases in the long run.

10. **Elasticity and Consumer Behavior**:

    Question: If the price of a good increases by 10%, and the quantity demanded remains unchanged, what is the price elasticity of demand for the good?

    a) 0.1

    b) 0.5

    c) 1.0

    d) 2.0

    Correct Answer: a) 0.1