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