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