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# Elasticity of Demand - examples and MCQs for CSEET

Elasticity of Demand:

Definition: Elasticity of demand measures how sensitive the quantity demanded of a good is to a change in its price. It helps us understand the responsiveness of consumers to price changes.

Types of Elasticity:

1. Elastic Demand: When the percentage change in quantity demanded is greater than the percentage change in price (|Ed| > 1). Consumers are highly responsive to price changes.

• Example: Luxury goods like designer handbags.

1. Inelastic Demand: When the percentage change in quantity demanded is less than the percentage change in price (|Ed| < 1). Consumers are less responsive to price changes.

• Example: Necessities like medications.

1. Unitary Elasticity: When the percentage change in quantity demanded is equal to the percentage change in price (|Ed| = 1).

Factors Influencing Elasticity:

1. Availability of Substitutes: More substitutes make demand more elastic.

2. Necessity vs. Luxury: Necessities tend to have inelastic demand, while luxuries often have elastic demand.

3. Time Horizon: Demand tends to be more elastic over a longer time period.

Elasticity Formula: Elasticity of Demand (Ed)=% Change in Quantity Demanded% Change in PriceElasticity of Demand (Ed)=% Change in Price% Change in Quantity Demanded​

### Examples:

1. Elastic Demand Example:

• If the price of a specific brand of smartphones increases, and as a result, consumers switch to other brands with similar features, it shows elastic demand.

1. Inelastic Demand Example:

• The demand for life-saving medications is often inelastic because people may need them regardless of price changes.

### Multiple Choice Questions:

1. What does elasticity of demand measure?

• A. Quantity supplied in response to price changes.

• B. Responsiveness of quantity demanded to price changes.

• C. Consumer preferences for goods.

• D. Market competition.

2. When is demand considered elastic?

• A. When |Ed| > 1.

• B. When |Ed| < 1.

• C. When |Ed| = 1.

• D. When |Ed| is undefined.

3. What is the characteristic of inelastic demand?

• A. |Ed| > 1.

• B. |Ed| < 1.

• C. |Ed| = 1.

• D. No responsiveness to price changes.

4. Which factor influences elasticity by making demand more elastic?

• A. Availability of substitutes.

• B. Market competition.

• C. Consumer preferences.

• D. Time horizon.

5. In the formula for elasticity of demand, what does Ed represent?

• A. Elasticity of demand.

• B. Change in price.

• C. Change in quantity supplied.

• D. Time horizon.

6. When is demand considered inelastic?

• A. When |Ed| > 1.

• B. When |Ed| < 1.

• C. When |Ed| = 1.

• D. When there are no substitutes.

7. What is unitary elasticity?

• A. |Ed| > 1.

• B. |Ed| < 1.

• C. |Ed| = 1.

• D. |Ed| is undefined.

8. What factor makes a good a candidate for elastic demand?

• A. Necessity.

• B. Availability of substitutes.

• C. Short time horizon.

• D. Luxury.

9. Which type of goods tend to have elastic demand?

• A. Necessities.

• B. Luxuries.

• C. Inferior goods.

• D. Complementary goods.

10. How does time horizon affect elasticity?

• A. Longer time horizon makes demand more elastic.

• B. Longer time horizon makes demand more inelastic.

• C. Time horizon has no impact on elasticity.

• D. Time horizon makes demand unitary elastic.

11. If the percentage change in quantity demanded is greater than the percentage change in price, what type of demand is it?

• A. Inelastic demand.

• B. Elastic demand.

• C. Unitary elasticity.

• D. No responsiveness.

12. What does a high availability of substitutes do to the elasticity of demand?

• A. Makes demand more elastic.

• B. Makes demand more inelastic.

• C. Has no impact on elasticity.

• D. Makes demand unitary elastic.

13. What is the characteristic of unitary elasticity?

• A. |Ed| > 1.

• B. |Ed| < 1.

• C. |Ed| = 1.

• D. |Ed| is undefined.

14. When might demand for a good be more elastic over a longer time period?

• A. When there are no substitutes.

• B. When the good is a luxury.

• C. When the time horizon is short.

• D. When consumers can adjust their habits.

15. What does inelastic demand imply about consumer responsiveness?

• A. High responsiveness.

• B. Low responsiveness.

• C. No responsiveness.

• D. Unitary responsiveness.

16. How is the elasticity of demand calculated?

• A. Elasticity of Demand (Ed)=Change in Quantity DemandedChange in PriceElasticity of Demand (Ed)=Change in PriceChange in Quantity Demanded​

• B. Elasticity of Demand (Ed)=% Change in Quantity Demanded% Change in PriceElasticity of Demand (Ed)=% Change in Price% Change in Quantity Demanded​

• C. Elasticity of Demand (Ed)=Change in Quantity SuppliedChange in PriceElasticity of Demand (Ed)=Change in PriceChange in Quantity Supplied​

• D. Elasticity of Demand (Ed)=% Change in Quantity Supplied% Change in PriceElasticity of Demand (Ed)=% Change in Price% Change in Quantity Supplied​

17. What is the characteristic of a Giffen good?

• A. Increasing demand as price increases.

• B. Decreasing demand as price increases.

• C. No change in demand with price changes.

• D. No substitutes available.

18. What type of goods are often associated with inelastic demand?

• A. Necessities.

• B. Inferior goods.

• C. Complementary goods.

• D. Luxury goods.

19. How does the availability of substitutes affect the responsiveness of demand?

• A. Increases responsiveness.

• B. Decreases responsiveness.

• C. Has no impact on responsiveness.

• D. Makes demand unitary elastic.

20. Which type of elasticity is characterized by a percentage change in quantity demanded equal to the percentage change in price?

• A. Elastic demand.

• B. Inelastic demand.

• C. Unitary elasticity.

• D. Perfectly elastic demand.