Economics 101 Practice Test: Elasticity | Practice Test / Quiz / MCQs

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Economics 101 Practice Test: Elasticity

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In economics, elasticity is a measure of how sensitive one economic factor is to changes in another. It can help economic agents understand how to improve economic outcomes. Elasticity is important for businesses, finance, and government because it helps them determine how to proceed with policies and prices. The three main types of elasticity are: Demand: The change in demand for a good based on its price Supply: The change in supply of a good based on its price and income Income: The change in demand with the change of consumers' incomes A product is considered elastic if a change... Show more

In economics, elasticity is a measure of how sensitive one economic factor is to changes in another. It can help economic agents understand how to improve economic outcomes.

Elasticity is important for businesses, finance, and government because it helps them determine how to proceed with policies and prices.

The three main types of elasticity are:
Demand: The change in demand for a good based on its price
Supply: The change in supply of a good based on its price and income
Income: The change in demand with the change of consumers' incomes

A product is considered elastic if a change in price makes a big difference in either the supply or demand of the product. Some examples of elastic products include: Cupcakes, High-end cars, and Drinks.
A product is considered inelastic if changing the price of the product doesn't change its supply or demand much, or at all. Some examples of inelastic products include: Gasoline and iPhones.

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Economics 101 Practice Test: Elasticity

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1. If the demand curve is linear and downward sloping, which of the following would NOT be correct?

Elasticity will change with a movement down the curve.Elasticity and slope would both remain constant along the curve.The upper part of the demand curve is more elastic than the lower part.The lower part of the demand curve would be less elastic than the upper part.

2. When demand is inelastic, a decrease in price will cause

a decrease in total revenue.an increase in total revenue.There is insufficient information to answer this question.no change in total revenue.

3. When a change in the price of a good results in no change in total revenue you know that the demand for this product is

perfectly inelastic.inelastic.elastic.unit elastic.

4. Corporation XYZ has a linear demand curve for its product. The company is currently producing on the lower portion of its demand curve. Increasing the price of the product will

increase the company’s total cost of production.increase the company’s total revenue.decrease the company’s total revenue.not affect the company’s total revenue.

5. The main determinant of the price elasticity of supply is

luxuries vs. necessities.the number of close substitutes.the definition of the market.time.

6. Total revenue changes as one moves down a linear demand curve by

decreasing, then increasing.increasing.decreasing.increasing, then decreasing.

7. Demand for a good would tend to be more elastic, the

fewer substitutes there are.greater the availability of complements.broader the definition of the market.longer the period of time considered.

8. The local pizza restaurant makes such great bread sticks that consumers do not respond much to a change in the price. If the owner is only interested in increasing revenue, he should

leave the price of the bread sticks alone.lower the price of the bread sticks.reduce costs.raise the price of the bread sticks.

9. You have just been hired as a business consultant to determine what pricing policy would be appropriate in order to increase the total revenue of a clothing store. The first step you would take is to

determine the elasticity of demand for the store’s products.suggest that the store purchase an entirely new line of clothing that they could sell more cheaply.look for ways to cut costs and increase profit for the store.increase the prices of the store’s products.

10. Supply tends to be

perfectly price inelastic in the long run.more price elastic in the long run.less price elastic in the long run.

11. Economists compute elasticity using the midpoint method primarily because it

is the simplest method to compute elasticity.automatically rounds quantities to the nearest whole unit.uses the same equation that is used to compute slope.gives the same answer regardless of the direction of change.

12. Economists compute the price elasticity of demand as

change in quantity demanded divided by the change in the price.percentage change in the price divided by the percentage change in quantity demanded.percentage change in the quantity demanded divided by the percentage change in price.percentage change in the quantity demanded divided by the percentage change in income.

13. Cross-price elasticity of demand measures how the

quantity demanded of a good changes as income changes.quantity demanded of one good changes as the price of another good changes.quantity demanded of a good changes as price changes.price of a good is affected when income changes.

14. The price elasticity of supply for a good will be greater (more elastic) the

more necessary the good is considered.broader the market is defined.longer the time period being considered.more close substitutes the good has.

15. If a 6 percent increase in income results in a 3 percent decrease in the quantity demanded of macaroni, then the income elasticity of demand for macaroni is

negative and therefore macaroni is a normal good.positive and therefore macaroni is an inferior good.negative and therefore macaroni is an inferior good.positive and therefore macaroni is a normal good.

16. The elasticity of demand for luxuries tends to be

greater than 1.equal to 1.less than 1.equal to 0.

17. A vertical supply curve tells us that

if the price of the product increases quantity supplied will decrease substantially.an infinite quantity will be supplied at a given price.suppliers will not respond to a change in price.suppliers will refuse to sell the product at the current market price.

18. The price elasticity of supply measures how responsive

buyers are to a change in income.buyers are to a change in price.sellers are to a change in buyers’ income.sellers are to a change in price.

19. The cross-price elasticity of demand determines whether goods are

luxuries or necessities.normal or inferior.complements or substitutes.elastic or inelastic.

20. Demand is said to be inelastic if

consumers respond substantially to a change in price.consumers respond directly to a change in income.the change in quantity demanded is equal to the change in price.consumers hardly respond to a change in price.

21. Demand is elastic if elasticity is

equal to 1.greater than 1.less than 1.equal to 0.

22. A firm would be willing to supply 500 frisbees per day at a price of $3.00 each. At a price of $5.00 each the firm would be willing to supply 1100 frisbees. Using the midpoint method, the elasticity of supply would be

0.67.1.5.0.75.1.0.

23. A perfectly inelastic demand is

vertical because buyers purchase the same amount whether the price rises or falls.horizontal because buyers increase their purchases by huge amounts with slight changes in price.positively sloped because buyers respond by increasing their purchases when price rises.negatively sloped because buyers decrease their purchases when the price rises.

24. The main reason for using the midpoint method is that it

rounds prices to the nearest dollar.gives the same answer regardless of the direction of change.rounds quantities to the nearest whole unit.uses fewer numbers.

25. If two supply curves pass through the same point and one is steep and the other is flat, which of the following would be correct?

The flatter supply curve is more elastic.It is impossible to tell the elasticity of supply for either curve unless you are given actual numbers to compute the elasticity of both curves.The elasticity of supply will be the same for both curves.The steeper supply curve is more elastic.

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