📚 Quick Study Guide
🔍 Price Elasticity of Demand (PED) measures the responsiveness of the quantity demanded of a good or service to a change in its price.
🔢 Formula: PED = % Change in Quantity Demanded / % Change in Price
➕ PED > 1: Elastic (Demand is sensitive to price changes)
➖ PED < 1: Inelastic (Demand is not sensitive to price changes)
↔️ PED = 1: Unit Elastic (Percentage change in quantity demanded equals the percentage change in price)
⏳ Midpoint Formula: Used for calculating percentage changes to avoid different results based on the direction of change. % Change = [(New Value - Old Value) / ((New Value + Old Value) / 2)] * 100
📈 Elastic goods often have many substitutes, while inelastic goods are often necessities.
🧪 Practice Quiz
Question 1:
If the price of a movie ticket increases by 10% and the quantity demanded decreases by 5%, what is the price elasticity of demand?
A) -0.5
B) 2
C) -2
D) 0.5
Question 2:
A product has a price elasticity of demand of -1.5. If the price decreases by 20%, what will be the approximate percentage change in quantity demanded?
A) -30%
B) 30%
C) -13.33%
D) 13.33%
Question 3:
Which of the following goods is most likely to have an inelastic demand?
A) Luxury cars
B) Designer clothing
C) Gasoline
D) Restaurant meals
Question 4:
Using the midpoint formula, if the price of a product increases from $10 to $12 and the quantity demanded decreases from 20 units to 16 units, what is the price elasticity of demand?
A) -1.00
B) -0.82
C) -1.22
D) -0.67
Question 5:
What does it mean if the price elasticity of demand is equal to 0?
A) Perfectly elastic
B) Perfectly inelastic
C) Unit elastic
D) Relatively elastic
Question 6:
If a company increases the price of its product and total revenue decreases, what can you conclude about the price elasticity of demand?
A) Demand is inelastic
B) Demand is elastic
C) Demand is unit elastic
D) Demand is perfectly inelastic
Question 7:
Which factor most significantly affects the price elasticity of demand?
A) The availability of substitutes
B) The income of consumers
C) The cost of production
D) Government regulations
Click to see Answers
1: A) -0.5
2: B) 30%
3: C) Gasoline
4: C) -1.22
5: B) Perfectly inelastic
6: B) Demand is elastic
7: A) The availability of substitutes