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If the price of a good fallls by 10% and the quantity demanded rises by 15%, what is the price elasticity of demand?
0.67 i.e. 10/15
1.5 i.e. 15/10

Supply of a good increases but the price does not change. Why is this? Clue - draw a supply and demand diagram.
Supply is perfectly elastic
Demand is perfectly elastic
Demand is perfectly inelastic

Imagine a coffee shop knows that the value of PED is 4 and after a price change, demand rises by 12%. By how much did they reduce the price?

A price elasticitiy of demand of - 3 could mean that:
There are not many available substitutes
Money spent on the good is a high proportion of total spending
It is a unique product with no competition
It is a normal good

In the diagram below, money spent by consumers at the two different prices is equal.This means that:
The elasticity of demand is unitary at all points
Consumer surplus is the same at all prices
PED = 0 at all points
The fall in price is equal in percentage terms to the rise in quantity demanded.

The income elasticity of demand for chocolates is 1.1 and for apples 0.9. This means that:I Chocolates and apples are both luxuriesII Chocolates and apples are both normalIII Chocolates and apples are both necessitiesIV Chocolates are luxury items whereas apples are necessities
I and IV ony
II and IV only
III and IV only
I and III only

A car for which the income elasticitiy of demand is -2.6 can be classifed as:
mildly inferior
strongly inferior
a very close substitute for another product

Each of three different goods, A, B and C, is characterised by its own supply curve, as shown in the diagram below. Which of the following statements about the supply curves is correct?
The PES for each of three goods is unitary (i.e. equals one)
The PES of good A is the most inleastic
The PES of good B is unitary
The PES of good C is the most elastic

A matrix showing elasticity values for bikes and tube (metro) travel is a capital city is shown below. Which of the following statements is true?
The two goods are strong substitutes since the cross-elasticities between them > 1
The two goods are weak complements since the cross-elasticities between them < 1
It cannot be determined whether they are complements or substitutes. More evidence is required.
The two goods are complements since commuters tend to ride their bikes to the station and then caatch the metro.

Given the data on cross-price elasticities contained in the table below, it makes sense for the local government of a congested city with a high marginal external cost of driving to pursue the following policy:
Subsidise metro travel since it has a high cross-price elasticity of demand with car travel
Tax metro travel since the cross-price elasticity with car travel is high
Reduce existing congestion charge rates since they are contributing to inflation
It does not make sense to pursue any policy right now

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Experienced teacher of micro- and macro-economics

Tests Created: 11

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