U1 AOS 2 - Lesson 12 - Price Elasticity Demand Flashcards
What is price elasticity of demand?
Price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good.
True or False: If the price elasticity of demand is greater than 1, the demand is considered elastic.
True
Price Elasticity of Demand Formula
Percentage change in quantity demanded divided by percentage change in price.
Which of the following goods is likely to have inelastic demand?
A) Luxury cars
B) Basic food items
C) Designer clothing
b) Basic food items
What happens to total revenue when price decreases for an elastic good?
Total revenue increases.
True or False: If the PED value is less than 1, demand is considered elastic.
False
What is the PED if a 10% increase in price leads to a 20% decrease in quantity demanded?
2
Multiple Choice: Which of the following values indicates perfectly inelastic demand?
A) 0
B) 1
C) Greater than 1
D) Less than 0
A) 0
True or False:
If demand is elastic, an increase in price will lead to an increase in total revenue.
False
How does unitary elasticity affect total revenue when price changes?
Total revenue remains unchanged when the price changes.
True or False:
The availability of substitutes is a factor that affects the price elasticity of demand.
True
Fill in the blank:
The _____ of a good refers to how much the quantity demanded changes in response to a change in price.
elasticity
Which factor tends to make demand more elastic: necessity or luxury?
Luxury
What is the effect of time on PED?
Demand tends to be more elastic in the long run than in the short run - given that consumers have more capacity to make decisions with more time, than having to rush to a last minute decision
List the factors influencing PED
- Degree of necessity
- Availability of substitutes
- Proportion of income
- Time
VCAA 2022
Question 6
Which one of the following goods and services is likely to have the highest price elasticity of demand?
A. cigarettes
B. haircuts
C. soft drinks
D. international travel
D
VCAA 2020
Question 9
The price elasticity of demand for a product will be greater
A. the more responsive the industry supply curve is for the product.
B. the larger the number of substitutes for the product.
C. the lower the proportion of their income consumers spend on the product.
D. the more necessary consumers regard the product to be for their consumption.
B
VCAA 2019
Question 6
A maximum price set below the equilibrium price will cause greater shortages if
A. both demand and supply are price inelastic.
B. both demand and supply are price elastic.
C. demand is price inelastic and supply is price elastic.
D. demand is price elastic and supply is price inelastic.
B
VCAA 2018
Question 10
The degree of price elasticity of demand is important to producers because it reveals how
A. responsive quantity demanded is to a change in price.
B. much of the product will be supplied at different prices.
C. responsive demand for a product is to advertising or promotional campaigns.
D. responsive quantity demanded is to a change in the level of consumer income.
A
VCAA 2017
Question 10
The quantity demanded for a product increases by a higher percentage than the decrease in the price of that product.
What is this known as?
A. demand elasticity
B. demand inelasticity
C. supply elasticity
D. supply inelasticity
B
Construct a demand curve that is price elastic
Construct a demand curve that is price inelastic
VCAA 2024
Question 8
Consider a market where the demand for a good is relatively inelastic. If supply was to decrease in the market, it is most likely that the price will
A. decrease, and the quantity demanded will decrease by a relatively smaller amount
B. increase, and the quantity demanded will decrease by a relatively smaller amount
C. increase, and the quantity demanded will decrease by a relatively larger amount
D. decrease, and the quantity demanded will decrease by a relatively larger amount
Price must increase so eliminate A and D
Quantity decreases less than the change in price (which makes sense because demand is inelastic) so answer is B
Which of the following is not a factor affecting price elasticity of demand?
A. Time
B. Degree of necessity
C. Spare capacity
D. Availability of substitutes
C - spare capacity affects price elasticity of supply
