Elasticity of Demand - examples and MCQs for CSEET
Elasticity of Demand:
Definition: Elasticity of demand measures how sensitive the quantity demanded of a good is to a change in its price. It helps us understand the responsiveness of consumers to price changes.
Types of Elasticity:
Elastic Demand: When the percentage change in quantity demanded is greater than the percentage change in price (|Ed| > 1). Consumers are highly responsive to price changes.
Example: Luxury goods like designer handbags.
Inelastic Demand: When the percentage change in quantity demanded is less than the percentage change in price (|Ed| < 1). Consumers are less responsive to price changes.
Example: Necessities like medications.
Unitary Elasticity: When the percentage change in quantity demanded is equal to the percentage change in price (|Ed| = 1).
Factors Influencing Elasticity:
Availability of Substitutes: More substitutes make demand more elastic.
Necessity vs. Luxury: Necessities tend to have inelastic demand, while luxuries often have elastic demand.
Time Horizon: Demand tends to be more elastic over a longer time period.
Elasticity Formula: Elasticity of Demand (Ed)=% Change in Quantity Demanded% Change in PriceElasticity of Demand (Ed)=% Change in Price% Change in Quantity Demanded
Examples:
Elastic Demand Example:
If the price of a specific brand of smartphones increases, and as a result, consumers switch to other brands with similar features, it shows elastic demand.
Inelastic Demand Example:
The demand for life-saving medications is often inelastic because people may need them regardless of price changes.
Multiple Choice Questions:
1. What does elasticity of demand measure?
A. Quantity supplied in response to price changes.
B. Responsiveness of quantity demanded to price changes.
C. Consumer preferences for goods.
D. Market competition.
Answer: B
2. When is demand considered elastic?
A. When |Ed| > 1.
B. When |Ed| < 1.
C. When |Ed| = 1.
D. When |Ed| is undefined.
Answer: A
3. What is the characteristic of inelastic demand?
A. |Ed| > 1.
B. |Ed| < 1.
C. |Ed| = 1.
D. No responsiveness to price changes.
Answer: B
4. Which factor influences elasticity by making demand more elastic?
A. Availability of substitutes.
B. Market competition.
C. Consumer preferences.
D. Time horizon.
Answer: A
5. In the formula for elasticity of demand, what does Ed represent?
A. Elasticity of demand.
B. Change in price.
C. Change in quantity supplied.
D. Time horizon.
Answer: A
6. When is demand considered inelastic?
A. When |Ed| > 1.
B. When |Ed| < 1.
C. When |Ed| = 1.
D. When there are no substitutes.
Answer: B
7. What is unitary elasticity?
A. |Ed| > 1.
B. |Ed| < 1.
C. |Ed| = 1.
D. |Ed| is undefined.
Answer: C
8. What factor makes a good a candidate for elastic demand?
A. Necessity.
B. Availability of substitutes.
C. Short time horizon.
D. Luxury.
Answer: B
9. Which type of goods tend to have elastic demand?
A. Necessities.
B. Luxuries.
C. Inferior goods.
D. Complementary goods.
Answer: B
10. How does time horizon affect elasticity?
A. Longer time horizon makes demand more elastic.
B. Longer time horizon makes demand more inelastic.
C. Time horizon has no impact on elasticity.
D. Time horizon makes demand unitary elastic.
Answer: A
11. If the percentage change in quantity demanded is greater than the percentage change in price, what type of demand is it?
A. Inelastic demand.
B. Elastic demand.
C. Unitary elasticity.
D. No responsiveness.
Answer: B
12. What does a high availability of substitutes do to the elasticity of demand?
A. Makes demand more elastic.
B. Makes demand more inelastic.
C. Has no impact on elasticity.
D. Makes demand unitary elastic.
Answer: A
13. What is the characteristic of unitary elasticity?
A. |Ed| > 1.
B. |Ed| < 1.
C. |Ed| = 1.
D. |Ed| is undefined.
Answer: C
14. When might demand for a good be more elastic over a longer time period?
A. When there are no substitutes.
B. When the good is a luxury.
C. When the time horizon is short.
D. When consumers can adjust their habits.
Answer: D
15. What does inelastic demand imply about consumer responsiveness?
A. High responsiveness.
B. Low responsiveness.
C. No responsiveness.
D. Unitary responsiveness.
Answer: B
16. How is the elasticity of demand calculated?
A. Elasticity of Demand (Ed)=Change in Quantity DemandedChange in PriceElasticity of Demand (Ed)=Change in PriceChange in Quantity Demanded
B. Elasticity of Demand (Ed)=% Change in Quantity Demanded% Change in PriceElasticity of Demand (Ed)=% Change in Price% Change in Quantity Demanded
C. Elasticity of Demand (Ed)=Change in Quantity SuppliedChange in PriceElasticity of Demand (Ed)=Change in PriceChange in Quantity Supplied
D. Elasticity of Demand (Ed)=% Change in Quantity Supplied% Change in PriceElasticity of Demand (Ed)=% Change in Price% Change in Quantity Supplied
Answer: B
17. What is the characteristic of a Giffen good?
A. Increasing demand as price increases.
B. Decreasing demand as price increases.
C. No change in demand with price changes.
D. No substitutes available.
Answer: A
18. What type of goods are often associated with inelastic demand?
A. Necessities.
B. Inferior goods.
C. Complementary goods.
D. Luxury goods.
Answer: A
19. How does the availability of substitutes affect the responsiveness of demand?
A. Increases responsiveness.
B. Decreases responsiveness.
C. Has no impact on responsiveness.
D. Makes demand unitary elastic.
Answer: A
20. Which type of elasticity is characterized by a percentage change in quantity demanded equal to the percentage change in price?
A. Elastic demand.
B. Inelastic demand.
C. Unitary elasticity.
D. Perfectly elastic demand.
Answer: C
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