Quiz: Are You an Expert on Price Elasticity of Demand?

📚 Quick Study Guide

• 📈 Definition: 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 = $\frac{\% \text{ change in quantity demanded}}{\% \text{ change in price}}$
• ♾️ Elastic Demand: PED > 1. Quantity demanded is highly responsive to price changes.
• 📉 Inelastic Demand: PED < 1. Quantity demanded is not very responsive to price changes.
• ↔️ Unit Elastic Demand: PED = 1. Percentage change in quantity demanded equals the percentage change in price.
• 🎯 Perfectly Elastic Demand: PED = ∞. Consumers will buy all of a product at a specific price but none if the price increases even slightly.
• 🧱 Perfectly Inelastic Demand: PED = 0. Quantity demanded does not change regardless of price.
• 💡 Factors Affecting PED: Availability of substitutes, necessity vs. luxury, proportion of income spent on the good, and time horizon.

Practice Quiz

1. Which of the following best describes price elasticity of demand?
   1. The change in price due to a change in demand.
   2. The responsiveness of quantity demanded to a change in price.
   3. The shift in the demand curve due to a price change.
   4. The relationship between price and supply.
2. If the price of a product increases by 10% and the quantity demanded decreases by 5%, what type of demand does this product have?
   1. Elastic
   2. Inelastic
   3. Unit Elastic
   4. Perfectly Elastic
3. Which of the following goods is most likely to have inelastic demand?
   1. Luxury cars
   2. Designer clothing
   3. Prescription medication
   4. Restaurant meals
4. A perfectly elastic demand curve is:
   1. Vertical
   2. Horizontal
   3. Downward sloping
   4. Upward sloping
5. If the price elasticity of demand for a good is 1.5, and the price decreases by 2%, what will be the percentage change in quantity demanded?
   1. Decrease by 3%
   2. Increase by 3%
   3. Decrease by 1.5%
   4. Increase by 1.5%
6. Which of the following factors tends to make demand more elastic?
   1. Few available substitutes
   2. The good is a necessity
   3. A short time horizon
   4. Many available substitutes
7. If a business increases the price of a product with elastic demand, what will happen to total revenue?
   1. Total revenue will increase.
   2. Total revenue will decrease.
   3. Total revenue will remain the same.
   4. The effect on total revenue is indeterminate.