Elasticity of Demand - Test
  • 1. What does the price elasticity of demand measure?
A) Average price of a product
B) Total quantity demanded for a product
C) Responsiveness of quantity demanded to a change in price
D) Profit margin of a product
  • 2. What does an elasticity value of 0 indicate?
A) Perfectly inelastic demand
B) Perfectly elastic demand
C) Unitary elastic demand
D) No demand for the product
  • 3. If a good has a lot of close substitutes, the demand for this good is likely to be:
A) Perfectly elastic
B) Unitary elastic
C) Elastic
D) Inelastic
  • 4. Why is knowing the elasticity of demand important for businesses?
A) To set optimal pricing strategies
B) To increase advertising expenditure
C) To maximize production efficiency
D) To focus on product quality
  • 5. How does the short-term vs. long-term impact the price elasticity of demand for a product?
A) In the short-term, demand tends to be less elastic than in the long-term
B) Time frame has no impact on price elasticity of demand
C) Short-term elasticity usually exceeds long-term elasticity
D) In the short-term, demand tends to be more elastic than in the long-term
  • 6. If the cross-price elasticity between two goods is positive, what does this imply about their relationship?
A) Inferior goods
B) Complements
C) Normal goods
D) Substitutes
  • 7. What is the main factor influencing the price elasticity of demand for a good or service?
A) Advertising budget
B) Availability of substitutes
C) Consumer income
D) Production cost
  • 8. If the income elasticity of a product is negative, what does this indicate?
A) Normal good
B) Luxury good
C) Inferior good
D) Giffen good
  • 9. What is the formula for calculating price elasticity of demand?
A) Total quantity demanded * Price
B) Price / Quantity demanded
C) Change in demand / Change in price
D) Percentage change in quantity demanded / Percentage change in price
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