I.

Multiple Choice Questions

1. Y and X are two substitute goods, when X has a price elasticity of demand of 2 (│ED P│= 2)
and the price of X increases with other factors remaining constant, the demand of Y will
A. Increase
B. Reduced
C. Constant
D. These sentences are wrong

2. If the number of people playing a game decreases from 10,000 to 8,000 while the price
increases from 6 USD to 8 USD, the price elasticity of demand for this game is
A. 2,0
B. 0,78
C. 1,29
D. 0,50

3. If the national income increases from 3.75 trillion to 4.25 trillion and car sales increase from 3
million to 5 million annually. So, the income elasticity of demand for cars is
A. 0,5
B. 2,0
C. 3,0
D. 4,0

4. When two goods are substitutes, then

A. The price elasticity of demand for one of the goods is negative
B. The income elasticity of demand for one of the goods is negative
C. The cross-price elasticity of demand for the goods is positive
D. The cross-price elasticity of demand for the goods is negative

5. The price of a good decreased from 650 USD to 350 USD, while sales volume increased from
70.000 units to 210.000 units annually. So, the price elasticity of demand for the good (in
absolute value) is approximately
A. 3,333
B. 1,667
C. 0,333
D. 0,600

6. Suppose there is an increase in a consumer's income from 160 USD/week to 170 USD/week
which causes consumption of A to decrease from 10 units to 7 units per week. The income
elasticity of demand for A will be about
A. 10
B. -5
C. -6
D. 5

7. A 5% decrease in the price of apples causes the quantity demanded of apples to increase by
10%. The price elasticity of demand for apples is .........and demand is referred to as ............
A. 0.5; Elastic
B. 2.0; Elastic
C. 0.5; Inelastic
D. 2.0; Inelastic

8. If the price elasticity of demand for a good is 2.0 (│ED P│= 2) and the price increases by 2%,
then the quantity demanded will
A. Decrease by 4%
B. Decrease by 1%
C. Increase by 2%
D. Cannot be determined with the above information

9. Total revenue will decrease if price ............ and demand is ..........

A. Increases, inelastic
B. Increases, unitary elastic
C. Decreases, inelastic
D. Decreases, elastic.

10. The cross-price elasticity of demand for A and B is -0.7. A and B are .........
A. Replaceable goods
B. Independent goods
C. Complementary goods
D. Substitute goods

11. A good whose demand is inelastic, if its price increases to 7 then there would be a/an…
A. Increase in demand for that good
B. Decrease in demand
C. Decrease in total revenue
D. Increase in total revenue

12. The definition of the price elasticity of demand is

A. The ratio of the percentage change in the quantity demanded of a product to the percentage
change in income
B. The ratio of the percentage change in the price of a product to the percentage change in the
quantity demanded
C. The ratio of the percentage change in the quantity demanded of a product to the percentage
change in the price
D. The ratio of the percentage change in the quantity demanded of a product to the percentage
change in the price of a related good

13. On a linear demand curve, B is located on the upper half, A is on the lower half of the demand
curve, which of the following is true?
A. A is more elastic than B
B. B is more elastic than A
C. A and B have equal elasticities
D. One cannot say anything about elasticity without more information

14. Which of the following statements is correct?

A. The income elasticity of demand for luxury goods is greater than 1
B. The income elasticity of demand for normal goods is negative
C. The elasticity of demand at a point on the demand curve is always greater than 1
D. The cross-price elasticity of demand for substitute goods is negative

15. A 10% increase in the price of apples causes the quantity demanded of apples to decrease by
5%. So the price elasticity of demand for apples is ........., and the demand is referred to
as……
A. 0.5; Elastic
B. 2.0; Elastic
C. 0.5; Inelastic
D. 2.0; Inelastic

16. Given that the equilibrium price and quantity of good X are (PE, QE); and I represents the
consumer's income. The price elasticity of demand for X at the equilibrium price and quantity
(Point Elasticity) is determined as:
A. ED P = (Q)’(P).(PE/QE)
B. ED P = (Q)’(P).(I/QE)
C. ED P = (Q)’(P).(QE/I)
D. ED P = (Q)’(P).(QE/PE)

17. If the price elasticity of demand for a good is equal to 1 (│ED P│= 1) then we can conclude
that the demand for that good is:
A. Perfectly Inelastic
B. Inelastic
C. Unitary elastic
D. Elastic

18. If the price elasticity of demand for a good is less than 1 (│ED P│< 1) then we can conclude
that the demand for that good is:
A. Perfectly Inelastic
B. Inelastic
C. Unitary elastic
D. Elastic

19. If the price elasticity of demand for a good is 0 (│ED P│= 0), then we can conclude that the
demand for that good is:
A. Perfectly Inelastic
B. Inelastic
C. Unitary elastic
D. Elastic

20. If the price of iPhone 15 decreases by 10% and the quantity demanded of this product
increases by 30%, the price elasticity of demand for iPhone 12 (in absolute value) is
A. 30
B. 3
C. 0.3
D. 0.03
21. The price elasticity of demand for a good is 2.5 (│ED P│= 2.5). Which statement below is
correct?
A. When the price of a good increases by 10%, the quantity demanded of that good decreases by
25%.
B. When the price of a good increases by 10%, the quantity demanded of that good increases by
25%.
C. When the price of a good increases by 10%, the quantity demanded of the good does not
change
D. When the price of a good decreases by 10%, the demand for that good decreases by 25%.

22. When the price elasticity of demand for X is elastic (│ED P│> 1), then in order to increase
total revenue, businesses should
A. Increase their price
B. Decrease their price
C. Keep the selling price the same
D. Increase or maintain the same selling price

23. In general, the price elasticity of demand for a good is smaller if

A. There are few substitutes for that good
B. There are many substitutes for that good
C. Consumers have many variations in their purchases of goods when prices change
D. It is a luxury good

24. Reducing the price of clean vegetables causes the total revenue of clean vegetables to
decrease, we can conclude that the demand for this item is
A. Elasticity
B. Inelasticity
C. Perfectly inelasticity
D. Perfectly elasticity

25. Increasing the price of beef causes the total revenue of sellers to decrease, we can conclude
that the demand for this product is
A. Elasticity
B. Unable to classify price elasticity of demand
C. Perfectly inelasticity
D. Perfectly elasticity

26. The price elasticity of demand for X is 0, then if the price falls then
A. Total revenue remains unchanged
B. The Quantity demanded does not change
C. The Quantity demanded falls to zero
D. Total revenue increased
E. None of this is true

27. Technological improvements reduce photocopy machine production costs. If the price
elasticity of demand for photocopiers is inelastic, we can predict
A. Sales volume decreased and total revenue increased
B. Sales volume decreased and total revenue decreased
C. Sales volume increased and total revenue increased
D. Sales volume increased and total revenue decreased
E. None of these sentences are correct

28. A vertical demand curve has a price elasticity of demand of

A. Equal to 0
B. Between 0 and 1
C. Equal to 1
D. Greater than 1
E. Equal to infinity

29. A horizontal demand curve has a price elasticity of demand of

A. Equal to 0
B. Between 0 and 1
C. Equal to 1
D. Greater than 1
E. Equal to infinity

30. If a 10% increase in income results in a 5% increase in quantity demanded, the income
elasticity of demand is equal to
A. +0,5
B. -0,5
C. +2,0
D. -2,0
E. All is incorrect

31. The price elasticity of demand is 2 (│ED P│= 2), a 1% decrease in price will
A. Doubles demand
B. Reduce the quantity demanded by two times
C. Increase the quantity demanded by 2%
D. Decrease the quantity demanded by 2%
E. Increase demand by 0.5%

32. Reducing the price of daytime movie tickets leads to a decrease in the total revenue, we
conclude that price demand for daytime movie tickets is
A. Elastic
B. Inelastic
C. Unitary elastic
D. Perfectly inelastic
E. Perfectly elastic

33. If the price is 10 $/item, the quantity purchased is 54 (thousand items), and if the price is 15
$/item, the quantity purchased is 46 (thousand items). Then the price elasticity of demand for
the good is approximately
A. 0,1
B. 0,4
C. 2,7
D. 0,7
 E. 3,5

34. When income increases by 5%, the quantity demanded for X increases by 2,5% (other factors
remain unchanged), we can say that X is a/an
A. Inferior good
B. Luxury good
C. Essential good
D. Independent good
E. Free good

35. If the data of goods X and Y are as follows: If PY = 8 then QDx = 12; If PY = 10 then QDx= 14;
Assuming other factors remain unchanged, we can conclude that X and Y are
A. Two complementary goods
B. Two substitute goods
C. Two independent goods
D. Cannot conclude

36. When the income elasticity of demand for X is negative, we can say that X is a/an
A. Essential Good
B. Inferior Goods
C. Cannot say
D. Luxury Goods

THE FOLLOWING PICTURE IS USED FOR QUESTIONS 37 AND 38

37. Which demand curve illustrates the price elasticity of demand of 1

A. The demand curve in figure a
B. The demand curve in figure b
C. The demand curve in figure c
D. The demand curve in figure d

38. Which demand curve has the price elasticity of demand is infinity (│EDP│= ∞)
 A. The demand curve in figure a
B. The demand curve in figure b
C. The demand curve in figure c
D. The demand curve in figure d

39. If the percentage change in price is greater than the percentage change in quantity demanded
then we can say that the demand could be referred to as…
A. Elastic
B. Inelastic
C. Perfectly Inelastic
D. Move left.

II. EXERCISES

Question 1: What is the price elasticity of demand? How to calculate the price elasticity of demand?

Question 2: Describe the relationship between price, the price elasticity of demand, and total revenue.

The price elasticity of demand P increases P decreases

│ED P│= 1 TR? TR?

│ED P│< 1 TR? TR?

│ED P│> 1 TR? TR?

Question 3: In each situation below, indicate whether demand is elastic, inelastic, unitary elastic,
perfectly inelastic, or perfectly elastic
A. The price of the computer decreased from $2.750 to $2.250 and the quantity demanded
increased from 40.000 units to 60.000 units.
B. The post office increased the price of a stamp from 0.38 USD to 0.42 USD but total revenue
remained unchanged.
C. The price of instant noodles doubled from 1.000 VND to 2.000 VND but the quantity
demanded remained unchanged.
D. A sudden decrease in the supply leads to a 10% increase in price and a decrease in quantity
demanded from 90.000 units to 20.000 units.

Question 4: The demand function for a good A is given as follows: Q= -0.1*P+50

1. Determine the price elasticity of demand for A at P= 220 and P= 320

2. Given that the market price is 280. At this price, if a business in a monopoly market wants to
increase total revenue, should they increase or decrease the price of the product?