94 exam-style questions on Elasticity of demand — topic 2.5 of Microeconomics in the IB Economics syllabus — with answers and explanations. Samples below; the full set is free with an account.
The price elasticity of demand for a good is 1.5. Demand for this good is
Answer: elastic
|PED| > 1 means the percentage change in quantity demanded exceeds the percentage change in price – demand is elastic.
Which factor tends to make the demand for a good more price elastic?
Answer: There are many close substitutes available.
When close substitutes exist, consumers can easily switch away after a price rise, making quantity demanded highly responsive to price.
The cross elasticity of demand (XED) between good A and good B is +2.5. This indicates that the two goods are
Answer: substitutes
A positive XED means a rise in the price of B raises demand for A, which is the relationship between substitutes.
At the midpoint of a downward-sloping, straight-line demand curve, the price elasticity of demand is
Answer: equal to 1 (unit elastic)
PED falls continuously as you move down a linear demand curve: it is elastic above the midpoint, inelastic below it, and exactly 1 at the midpoint. Elasticity is not the same as slope.
Which of the following is the most likely reason why primary commodities generally have a lower price elasticity of demand than manufactured products?
Answer: They are necessities with few close substitutes
Primary commodities such as food staples and raw materials are necessities and usually lack close substitutes, so quantity demanded responds weakly to price changes. Manufactured goods face many substitute brands, making their demand more elastic.
The income elasticity of demand for a good is +0.4. The good is best described as
Answer: a necessity
A YED between 0 and 1 means demand rises with income but less than proportionately — the definition of a necessity. Luxuries have YED greater than 1 and inferior goods have negative YED.
That was 6 of 94 Elasticity of demand questions.
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94 Elasticity of demand questions — free with an account. Spaced repetition, streaks and full exam simulations included.
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