Semester October 2022 – February 2023

EXERCISE CHAPTER 3
Multiple choices questions
1. Price elasticity of demand refers to the ration of the
A. percentage change in the price of a good or service in response to a percentage change in the
quantity demanded.
B. percentage change in the price of a good or service to a percentage change in income.
C. percentage change in the quantity demanded of a good or service to a percentage change in its
price.
D. percentage change in the quantity demanded of a good or service to a change in price of
another good or service.

2. If demand is price elastic,

A. a small change in price will lead to a greater change in quantity demanded.
B. a small change in price will lead to no change in quantity demanded.
C. a small change in price will lead to a smaller change in quantity demanded.
D. a small change in price will lead to a proportionate change in quantity demanded.

3. If the demand curve for a product is a vertical straight line, it shows that it is
A. perfectly elastic
B. perfectly inelastic
C. elastic
D. inelastic

4. If demand is elastic, when the price decreases, the total revenue will
A. decrease
B. increase
C. not change
D. All of the above
Semester October 2022 – February 2023

5. If car and petrol are complements, then their cross elasticity coefficient is
A. less than one
B. more than one
C. positive
D. negative

6. Elasticity of supply will be more elastic when

A. the number of producers selling the product decreases.
B. producers are given less time to respond to the price changes.
C. there are many buyers for the product.
D. there are many resources that can be used to make the product.

7. The government has increased the tax on cigarettes recently. This tax can help to increase the
government revenue if the elasticity of demand for cigarettes is
A. perfectly elastic
B. elastic
C. inelastic
D. unitary elasticity

8. A positive income elasticity of demand coefficient indicates that

A. a product is an inferior good.
B. a product is a normal good.
C. a product has an elastic demand
D. a product has an inelastic demand

9. In the short run, supply is

A. price inelastic.
B. price elastic.
C. perfectly price inelastic.
Semester October 2022 – February 2023

D. perfectly price elastic.

10. If a product has an elastic demand, total revenue may increase if the producer
A. decreases the price of the product.
B. increases the price of the product.
C. reduces supply
D. does more advertisement for the product.
Case Study
Flood Destroyed Major Crops
The recent flood that happened in Kedah has resulted in a bad harvest of major crops, including
paddy, for many farmers in that state, which is known as the “rice bowl of the country”. The
reduction in supply resulted in a higher price of rice. Since rice is the staple food for Malaysians,
the price increase affected many people and vastly reduced paddy farmers’ total revenue.
Through the total revenue of farmers going down, the supply of rice need not change much in the
short run. With the help from the government and the use of advanced technology, these farmers
hope that the production of paddy will increase in the future.
1. Determine the degree of price elasticity of supply for rice with the aid of a diagram.
2. Is the supply of rice elastic or inelastic in the long run? Explain three (3) factors that influence
the elasticity of supply.
3. Give two (2) suggestions about how farmers can increase the production of paddy in Malaysia.
Essay Questions
1. Explain, with relevant examples and diagrams, the five (5) degrees of price elasticity of
demand.
2. Discuss three (3) determinants of price elasticity of demand.
3. Define income elasticity of demand. Discuss three (3) degree of income elasticity of demand.

END OF QUESTIONS