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
11. **Price Elasticity of Supply**:
Question: If the price of a rare gemstone increases by 20%, and the quantity supplied increases by 30%, what is the price elasticity of supply for the gemstone?
a) 0.5
b) 1.0
c) 1.5
d) 2.0
Correct Answer: c) 1.5
12. **Elasticity Concepts**:
Question: If the price elasticity of demand for a good is -0.8, how would you describe the elasticity, and what does the negative sign indicate?
a) The good is inelastic, and the negative sign indicates a normal good.
b) The good is elastic, and the negative sign indicates a luxury good.
c) The good is inelastic, and the negative sign indicates a substitute good.
d) The good is elastic, and the negative sign indicates a complementary good.
Correct Answer: a) The good is inelastic, and the negative sign indicates a normal good.
13. **Cross-Price Elasticity and Complements**:
Question: If the cross-price elasticity of demand between two goods is 0.3, 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 inferior goods.
Correct Answer: a) They are complements.
14. **Income Elasticity and Normal Goods**:
Question: If the income elasticity of demand for a good is 0.9, what does this suggest about the nature of the good concerning consumer income?
a) It is a normal good, and as income increases, quantity demanded increases.
b) It is an inferior good, and as income increases, quantity demanded decreases.
c) It is a luxury good, and as income increases, quantity demanded remains unchanged.
d) It is a Giffen good, and as income increases, quantity demanded decreases.
Correct Answer: a) It is a normal good, and as income increases, quantity demanded increases.
15. **Price Elasticity and Luxury Goods**:
Question: Which of the following goods is more likely to have a price elasticity of demand greater than 1, a luxury car or basic food staples?
a) Luxury car.
b) Basic food staples.
c) They both have the same elasticity.
d) It depends on market conditions.
Correct Answer: a) Luxury car.
16. **Elasticity and Tax Burden**:
Question: In a market with perfectly inelastic demand and perfectly elastic supply, 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: b) Producers.
17. **Price Elasticity and Total Revenue Maximization**:
Question: A business wants to maximize total revenue for its product. If the price elasticity of demand for the product is -0.7, 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: a) Increase prices.
18. **Elasticity and Long-Run Supply**:
Question: In the long run, what typically happens to the elasticity of supply for most goods?
a) Elasticity of supply increases.
b) Elasticity of supply decreases.
c) Elasticity of supply remains constant.
d) Elasticity of supply varies depending on market conditions.
Correct Answer: a) Elasticity of supply increases.
19. **Elasticity and Short-Run vs. Long-Run**:
Question: In the context of demand elasticity, what is typically true in the short run compared to the long run?
a) Short-run demand is more elastic.
b) Short-run demand is less elastic.
c) Long-run demand is more elastic.
d) Long-run demand is less elastic.
Correct Answer: b) Short-run demand is less elastic.
20. **Elasticity and Substitutes**:
Question: If two goods are close substitutes, what is the likely range of their cross-price elasticity?
a) Highly positive.
b) Highly negative.
c) Close to zero.
d) It depends on consumer preferences.
Correct Answer: a) Highly positive.
21. **Price Elasticity of Demand and Total Revenue**:
Question: If a business decreases the price of its product by 30% and experiences a 20% increase in the quantity demanded, what happens to the total revenue for the product?
a) Total revenue decreases.
b) Total revenue increases.
c) Total revenue remains constant.
d) Total revenue is not affected.
Correct Answer: b) Total revenue increases.
22. **Cross-Price Elasticity and Unrelated Goods**:
Question: If the cross-price elasticity of demand between two goods is close to zero, 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 inferior goods.
Correct Answer: c) They are unrelated.
23. **Income Elasticity and Luxury Goods**:
Question: If the income elasticity of demand for a good is 2.5, what does this suggest about the nature of the good concerning consumer income?
a) It is a normal good, and as income increases, quantity demanded increases.
b) It is an inferior good, and as income increases, quantity demanded decreases.
c) It is a luxury good, and as income increases, quantity demanded increases significantly.
d) It is a Giffen good, and as income increases, quantity demanded decreases.
Correct Answer: c) It is a luxury good, and as income increases, quantity demanded increases significantly.
24. **Price Elasticity and Essential Goods**:
Question: Which of the following goods is more likely to have a price elasticity of demand less than 1, essential medicines or designer clothing?
a) Essential medicines.
b) Designer clothing.
c) They have the same elasticity.
d) It depends on consumer preferences.
Correct Answer: a) Essential medicines.
25. **Elasticity and Tax Incidence**:
Question: In a market with perfectly elastic demand and perfectly inelastic supply, 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: b) Producers.
26. **Price Elasticity and Demand Sensitivity**:
Question: If the price of a good increases by 5%, and the quantity demanded decreases by 25%, what is the price elasticity of demand for the good?
a) 0.05
b) 0.2
c) 1.0
d) 5.0
Correct Answer: d) 5.0
27. **Elasticity and Inelastic Supply**:
Question: In a market with perfectly elastic demand and perfectly inelastic supply, how does a change in consumer preferences affect the equilibrium price and quantity?
a) Equilibrium price and quantity both increase.
b) Equilibrium price decreases, quantity increases.
c) Equilibrium price remains constant, quantity decreases.
d) Equilibrium price increases, quantity remains constant.
Correct Answer: b) Equilibrium price decreases, quantity increases.
28. **Cross-Price Elasticity and Complements**:
Question: If the cross-price elasticity of demand between two goods is -1.2, 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 inferior goods.
Correct Answer: a) They are complements.
29. **Elasticity and Market Dynamics**:
Question: In a market with highly elastic demand, how does a small increase in supply affect the equilibrium price and quantity?
a) Equilibrium price decreases significantly, quantity increases.
b) Equilibrium price increases slightly, quantity decreases.
c) Equilibrium price and quantity both remain constant.
d) Equilibrium price increases significantly, quantity remains constant.
Correct Answer: a) Equilibrium price decreases significantly, quantity increases.
30. **Elasticity and Luxury vs. Necessity**:
Question: In general, are luxury goods more likely to have elastic or inelastic demand compared to necessities, and why?
a) Luxury goods have elastic demand because consumers are highly responsive to price changes.
b) Luxury goods have inelastic demand because they are essential for consumers.
c) Luxury goods can have either elastic or inelastic demand depending on consumer preferences.
d) Necessities have elastic demand because consumers have limited choices.
Correct Answer: c) Luxury goods ca
n have either elastic or inelastic demand depending on consumer preferences.
These questions should provide a challenging assessment of your knowledge of elasticity of supply and demand in various scenarios. If you have more questions or need further explanations, please feel free to ask!
