CH-4 ELASTICITY OF DEMAND

1. 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.

A. True
B. False
2. Price elasticity of demand –

A. Measuring the price elasticity of demand is dependent on discovering

what decisions a firm will make with regard to their pricing.
B. It is done by measuring how demand changes in relation to a price
change.
C. Both A&B
D. None
3. Factors determining price elasticity of demand include:

I. Nature of the commodity

II. Number of substitutes
III. Goods having several uses
IV. Durable Goods and perishable goods
V. Price Level, Income Level
VI. Consumer’s Loyalty

A. (I) (III) and (V) only

B. (III) (IV) and (V) only
C. All of the above
D. None
4. For comforts and luxuries, the elasticity of demand is __________ because even a
smaller change in price brings bigger changes in quantity demanded.

A. Elastic
B. Inelastic
C. Perfectly elastic
D. None
5. Elasticity of demand for those goods which are either high priced or low priced
is:

A. Elastic
B. Inelastic
C. Perfectly inelastic
D. None
6. Which characteristics Perfectly elastic demand shows:

A. Value of infinity
B. Smallest price rise will extinguish demand
C. Both A&B
 D. None
7. Income elasticity of demand –

A. A measure of the responsiveness of demand for a good in relation to a

change in the level of money income amongst consumers.
B. The income elasticity of demand for a product is also what is used to
determine if the good is “normal” or “inferior”.
C. Both A&B
D. None
8. 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.

A. True
B. False
9. Which of the following is true for Complement good?

A. A good where demand for Good A is increased, by a rise in demand for

Good B.
B. A complement good has a negative cross price elasticity of demand.
C. Both A&B
D. None
10. Which of the following is true for Substitute good?

A. A good where demand for Good A is increased, by a fall in demand for

Good B.
B. These types of goods are often bought instead of each other.
C. A substitute good has a positive cross price elasticity of demand.
D. All of the above
11. 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_____________.

A. Complement, elastic
B. Substitutes, inelastic
C. Both A&B
D. None
12. If the price decreases from Rs 50 to Rs 45 of a commodity but the quantity demanded
remains the same price elasticity is:
 A) One
 B) Infinity
 C) Zero
 D) None of these
13. Which of the following will have elastic demand?
 A) Medicine
 B) Books
 C) Vagetables
 D) Washing Machine
14.  A consumer demand 5 units of a commodity at the price of Rs 4 per unit. He demands
10 units when the price falls to Rs 3 per unit. Price elasticity of demand is equal to:
 A) 1
 B) 3
 C) 4
 D) 1.5
15.  In the given figure with given values, identify the demand curve, given the
initial price is 500 and quantity is 23, using total expenditure method

(a)  Unitary Elastic

(b) Inelastic Demand
(c) elastic demand
(d) None of the above
16.  Line Segment below the point on the demand curve / Line Segment above the
point on the demand curve. What method of measuring price elasticity of
demand does this formula refer to.
(a) Arc Method
(b) Percentage method
(c) Point Method
(d) None of the above
17. Which of the following is NOT a factor affecting price elasticity of demand
(a) Availability of Substitutes
(b) Proportion of Income Spent
(c) Techniques of Production
(d) Number of uses of a commodity
18. The demand for electricity is highly elastic since
(a) The number of uses of a commodity is high
(b) At a high price, it can only be used for important activities. Therefore, when
the price drops it can be put to other uses as well
(c) Both a and b
(d) None of the above
19. ________ elasticity of demand measures the degree of responsiveness of the
quantity demanded of a commodity to a change in the income of the consumer
(a) price
(b) money
(c) income
(d) cross
20. Income Elasticity of Demand is said to be _______ when with an increase in
income of the consumer, the amount purchased of a commodity increases and
vice-versa with a decrease in income
(a) increasing
(b) negative
(c) positive
(d) elastic
QUESTION NO 21-30