Price elasticity of demand is defined as a measure of the extent of changes in the market demand for a good in response to a change in price. Here on MCQs.club we have made easy understandable Multiple-Choice Questions (MCQs) on elasticities. These MCQs fully cover price elasticity of demand and its types, income elasticity of demand, equilibrium price, cross price elasticity. These MCQs on types of elasticity and cost elasticity are useful for Professional accountancy exams, Business management exams and Competitive exams.

Price elasticity of demand is defined as a measure of the extent of changes in the market demand for a good in response to a change in price.

1. True
2. False

Price elasticity of demand –

1. Measuring the price elasticity of demand is dependent on discovering what decisions a firm will make with regard to their pricing.
2. It is done by measuring how demand changes in relation to a price change.
3. Both A&B
4. None

Factors determining price elasticity of demand include:

1. 1. Nature of the commodity
  2. Number of substitutes
  3. Goods having several uses
  4. Durable Goods and perishable goods
  5. Price Level, Income Level
  6. Consumer’s Loyalty

1. (I) (III) and (V) only
2. (III) (IV) and (V) only
3. All of the above
4. None

For comforts and luxuries, the elasticity of demand is __________ because even a smaller change in price brings bigger changes in quantity demanded.

1. Elastic
2. Inelastic
3. Perfectly elastic
4. None

Elasticity of demand for those goods which are either high priced or low priced is:

1. Elastic
2. Inelastic
3. Perfectly inelastic
4. None

Which characteristics Perfectly elastic demand shows:

1. Value of infinity
2. Smallest price rise will extinguish demand
3. Both A&B
4. None

Which characteristics elastic demand shows:

1. Value between 1 and infinity
2. Demand responds strongly to price
3. Cut price to raise revenue
4. All of the above

Which characteristics Unit elasticity of demand shows:

1. Value of 1
2. Demand responds in exact proportion to price
3. Price changes do not affect revenue
4. All of the above

Which characteristics inelastic demand shows:

1. Value between 0 and 1
2. Demand responds weakly to price
3. Raise price to raise revenue
4. All of the above

Which characteristics Perfectly inelastic demand shows:

1. Value of 0
2. Demand totally unaffected by price changes
3. Both A&B
4. None

Different methodologies of measuring price elasticity of demand include:

1. Total expenditure method
2. Percentage method
3. Arc elasticity method
4. All of the above

Price elasticity of demand “Total expenditure method” –

1. This way of determining elasticity is to inspect the total expenditure of the consumer, or total revenue to the firm, after a change in price.
2. The method simply compares the total revenue (price x quantity) at one price level to the total revenue at another.
3. Both A&B
4. None

Which of the following is true for Price elasticity of demand Total expenditure method: “Elastic demand”?

1. A decrease in price will increase revenue due to the increase in quantity demanded more than offsetting the decrease in price.
2. An increase in price will decrease revenue due to the decrease in quantity demanded more than offsetting the increase in price.
3. Price and revenue move in opposite directions.
4. All of the above

Which of the following is true for Price elasticity of demand Total expenditure method: “Inelastic demand”?

1. A decrease in price will decrease revenue as the increase in quantity demanded fails to compensate the fall in price.
2. An increase in price will increase revenue due to the decrease in quantity being more than compensated by the increase in price.
3. Price and revenue move in the same direction.
4. All of the above

The total expenditure method offers a simple solution to ascertaining whether or not a good has elastic, inelastic or unitary demand. However, it is unable to give more detail as to whether a certain good is more elastic than another, or by how much.

1. The above statement is correct
2. The above statement is incorrect

Which of the following is true for Price elasticity of demand Percentage method: “Elastic demand”?

1. 1. If E > 1; the percentage rise in quantity demanded is more than the percentage fall in price.
  2. A decrease in price will increase revenue due to the increase in quantity demanded more than offsetting the decrease in price.
  3. An increase in price will decrease revenue due to the decrease in quantity demanded more than offsetting the increase in price.
  4. Price and revenue move in opposite directions.

1. (I) and (III) only
2. (I) and (IV) only
3. All of the above
4. None

Which of the following is true for Price elasticity of demand Percentage method: “Inelastic demand”?

1. 1. Price and revenue move in opposite directions.
  2. If E <1; the percentage rise in quantity demanded is less than the percentage fall in price.
  3. Revenue will decrease owing to the decline in price not being offset by the relatively small increase in quantity demanded.
  4. Price and revenue move in the same direction.

1. All of the above
2. (II) and (III) only
3. (I) and (III) only
4. None

Which of the following is true for Price elasticity of demand Percentage method: “Unitary demand”?

1. If E =1; the percentage rise in quantity demanded equals the percentage fall in price.
2. Revenue remains unchanged because the decline in the price is offset by the increase in quantity.
3. Both A&B
4. None

Which of the following is true for Price elasticity of demand Percentage method: “Arc elasticity method”?

1. The elasticity at two different points on the demand curve is Arc Elasticity of demand
2. Arc elasticity is the measure of the average responsiveness to price changes exhibited by a demand curve over some finite stretch of the curve”.
3. Both A&B
4. None

Which of the following is true for Point elasticity method?

1. The elasticity of demand on a single point on a demand curve is called point elasticity of demand.
2. Point elasticity of demand measure is used for very small changes in price and quality.
3. Both A&B
4. None

Identify which of the following are considerations, and useful indicators, as to how price sensitive a product may be:

1. 1. The proportion of income spent on the good
  2. The availability of substitutes
  3. The degree of brand or product loyalty for the good
  4. Whether the good is a necessity or a luxury
  5. Whether changes in demand are being measured in the long-run or the short-run.

1. (I) (III) and (IV) only
2. (I) (IV) and (V) only
3. All of the above
4. None

Income elasticity of demand –

1. A measure of the responsiveness of demand for a good in relation to a change in the level of money income amongst consumers.
2. The income elasticity of demand for a product is also what is used to determine if the good is “normal” or “inferior”.
3. Both A&B
4. None

A measure of the responsiveness of demand for a good A in relation to a change in price of good B is known as Cross price elasticity of demand.

1. True
2. False

Which of the following is true for Complement good?

1. A good where demand for Good A is increased, by a rise in demand for Good B.
2. A complement good has a negative cross price elasticity of demand.
3. Both A&B
4. None

Which of the following is true for Substitute good?

1. A good where demand for Good A is increased, by a fall in demand for Good B.
2. These types of goods are often bought instead of each other.
3. A substitute good has a positive cross price elasticity of demand.
4. All of the above

The positive cross price elasticity of demand means that the products are___________, and that the absolute number is less than one means that the relationship is_____________.

1. Complement, elastic
2. Substitutes, inelastic
3. Both A&B
4. None

Price elasticity of supply – A measure of the responsiveness of quantity supplied to a change in the price of the good.

1. The above statement is incorrect
2. The above statement is correct

Which of the following is true for Elastic supply?

1. A small increase in price leads to a proportionally greater increase in quantity supplied.
2. An increase in price leads to a proportional increase in quantity supplied
3. A large increase in price leads to only a small increase in quantity supplied.
4. None

Which of the following is true for Unitary elasticity of supply?

1. A small increase in price leads to a proportionally greater increase in quantity supplied.
2. An increase in price leads to a proportional increase in quantity supplied
3. A large increase in price leads to only a small increase in quantity supplied.
4. None

Which of the following is true for Inelastic supply?

1. A small increase in price leads to a proportionally greater increase in quantity supplied.
2. An increase in price leads to a proportional increase in quantity supplied
3. A large increase in price leads to only a small increase in quantity supplied.
4. None

Identify the factors that would increase the price elasticity of supply:

1. 1. Greater availability of stocks
  2. Greater ability for firms to switch resources to and from substitutes in production
  3. Increased ease of entry and exit to and from the market
  4. Shorter length of production process

1. All of the above
2. (I) and (II) only
3. (III) and (IV) only
4. None

If demand rises, firms will need time to bring forward additional supply. Therefore, the analysis of elasticity is commonly divided into:

1. Momentary (or market) period
2. Short run period
3. Long run period
4. All of the above

Identify the factors that can contribute towards unstable price movements.

1. Weather conditions
2. Constant, inelastic demand for produce – must be bought whatever the price
3. Competition to produce other goods i.e. biofuels for energy
4. All of the above

The more elasticity that exists in both supply and demand, the more price stability we would expect to see in the market.

1. True
2. False

Buffer stock scheme –

1. A measure that uses commodity storage for the purpose of stabilising prices in a market
2. This means that buyers and sellers interact to the market equilibrium, and then the government intervenes to purchase the surplus.
3. Both A&B
4. None

Disadvantages of buffer stock scheme include:

1. It encourages over-production of certain commodities, as the pricing signal of the market mechanism is no longer in action.
2. administrative, and storage costs associated with the maintaining levels of buffer stocks is high.
3. Both A&B
4. None

Cobweb Theory –

1. This theory looks to offer an explanation as to why prices periodically fluctuate.
2. It traces the movement through changes in supply and demand.
3. It offers an explanation as to how the market reaches equilibrium, from a point that started off-equilibrium.
4. All of the above

The main assumption in the cobweb theory is that expectations of the price in the next period are made solely on what they were in the last period.

1. True
2. False

—More to come soon—

Ayesha Memon says:

August 7, 2021 at 2:58 pm

where is answers of all these questions?

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1. Club Admin says:
  
  August 8, 2021 at 10:37 am
  
  Answers are highlighted in “BOLD”
  
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Demand and Supply MCQs | Elasticities

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