Economics

Elasticity Multiple Choice Questions (Goodluck)

1. Income elasticity for an inferior good is;

a. Zero
b. Inelastic
c. Unitary
d. Negative

2. A manufacturer reduces the price of his washing

machines by 5% and, as a result, the volume of sales of
washing machines rises by 4%. The price elasticity of
demand for the good is;
a. -1.25
b. -1.0
c. -0.8
d. Undetermined from available information

3.
Income Units of Demand

A B C
D

10,000 200 200 200 200

12,000 200 240 260 280

Over and above the range of income, for which good (A, B, C
or D) does the household have a YED of unity?
a. A
b. B
c. C
d. D

4. Evidence suggests the cross elasticity of demand (XED)

between private and public transport, whilst positive, is very
low. This therefore follows that:

a. A fall in demand for private transport would cause a small rise in

demand for public transport
b. A rise in price of public transport would cause a slight fall in the
demand for public transport
c. A fall in demand for private transport would cause a small rise in
price of public transport
d. An increase in price of private transport would cause a small
increase in the demand for public transport
5. The table shows the estimate for the UK consumer’s
income elasticity of demand (YED) for holidays in 4 different
countries

Country YED
Turkey 0.8

Italy 1.0

Sweden 1.4

Australia 2.0

From the data it may be concluded that a 10% rise in real

incomes leads to a
a. Fall in demand for Turkish holidays
b. No change in demand for Italy
c. A 14% increase in the demand for Sweden
d. A 27% rise in the demand for holidays in Australia

6. The Cross Elasticity of Demand (XED) measures the extent

to which a change in
a. The demand for one good affects the price of another
b. Consumers income affects the demand for another good
c. The price of one good affects the demand for another good
d. The demand for a good affects the amount supplied

7. A product has a Price Elasticity of Supply of +1.5. Its price

falls from £1.00 to 80 pence, its supply will
a. Decrease by 30%
b. Decrease by 40%
c. Increase by 40%
d. Increase by 40%

8.

“The World Health Organisation said last week that a

10% rise in the price of cigarettes worldwide, would
decrease consumption by 4% in high
Source: income 14
Guardian, nations
th
August
& 8% in low income“00nations”

From the above statement

a. Smokers in high income countries are twice as addicted as those
in low income countries
b. Price elasticity of demand of cigarettes is lower in low income
countries
c. Income elasticity of demand is higher in low income countries
than high income countries
d. Price elasticity is negative in both high & low income countries

9. If income elasticity for a good is positive, this means that

this good must be
a. An inferior good
b. A complimentary good
c. A public good
d. A normal good

10. The extent to which demand for one good responds to a

change in the price of another good is measured by
a. Price elasticity of demand
b. Income elasticity of demand
c. Cross elasticity of demand
d. A change in the conditions of demand

11. it was reported in December 2001 that De Beers, the

worlds biggest diamond dealer, was trying to restore the
image of diamonds as the ultimate status symbol (Daily
Mail, 27th December 2001)

If the company estimated that the income elasticity for

diamonds was +2.0, by how much might De Beers have
expected the demand for diamonds to change if average
incomes had risen by 5%?
a. -2.5%
b. +2.5%
c. +10.0%
d. -10.0%

12. The following information gives the details of the price

elasticity of demand for certain goods and services

Cars -1.5
Telephone Calls -1.0
Cinema Tickets -0.4
Matches 0.0

Given the information, an increase in the price of each item

by 1% would result in an increase in sales revenue in the
case of
a. Cars
b. Cars & telephones calls
c. Cinema tickets & matches only
d. Matches only
13. The income elasticity of demand for bus travel is -2.0.
This means that
a. A 10% increase in fares will lead to a 20% decrease in passengers
b. For most people bus travel is an inferior good
c. Buses are likely to have a negative cross elasticity of demand
d. As unemployment falls more people will use their local buses

14. In December 2001, Powergen announced an increase in

the price of its gas of almost 9%. Assuming a 9% increase in
price, what is Powergens’s estimate of the value of the price
elasticity of demand for its gas if the company is predicting
that demand will fall by 2.7%, all other things being equal?
a. -0.3
b. +0.3
c. +3.33
d. -3.33

15. Which of the following diagrams below illustrate that 2

goods, X & Y, are complementary goods?

16. When demand is income inelastic, the percentage

change in
a. Income is greater than the percentage change in quantity
demanded
b. The quantity demanded is greater than the percentage change in
income
c. Income is less than the percentage change in quantity demanded
d. Quantity demanded is the same as the percentage change in
income

17. An increase in the price of good X results in a fall in

demand for good Y. This result implies that the two goods
a. Are in joint supply
b. Are complementary goods
c. Have elastic demand curves
d. Are produced by competing firms

18.

Quantity Demand of
Good X

The relationship in the diagram above illustrates that the

two goods X & Y are
a, Inferior goods
b. Complementary goods
c. Normal goods
d. Substitute goods

19. The table shows the price and quantity for two goods X & Y.

Price of X Quantity of X Quantity of Y

Demanded
Demanded

£10 20 30
£9 24 42

The cross elasticity of demand for X & Y when the price of X

falls from £10 to £9 is
a. +4
b. +2
c. -2
d. -4