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