Saigon International School of Business
The collaborative programme
Between Ho Chi Minh University of Banking and
University of Bolton (United Kingdom) and University
of Toulon (France)
MODULE TITLE: BUSINESS ENVIRONMENT (PRINCIPLES OF ECONOMICS)
ASSIGNMENT 04 – Elasticities of Demand and Supply
No. QUESTIONS
Suppose that a 2% increase in price results in a 6% decrease in quantity demanded.
Own-price elasticity of demand is equal to:
a. 1/3
1
b. 3
c. 2
d. 6
If own-price elasticity of demand equals 0.3 in absolute value, then what percentage
change in price will result in a 6% decrease in quantity demanded?
a. 3%
2
b. 20%
c. 6%
d. 50%
Suppose you are told that the own-price elasticity of supply equal 0.5. Which of the
following is the correct interpretation of this number?
A 1% increase in price will result in a 50% increase in quantity supplied.
3
A 1% increase in price will result in a 5% increase in quantity supplied.
A 1% increase in price will result in a 2% increase in quantity supplied.
A 1% increase in price will result in a 0.5% increase in quantity supplied.
Suppose that a 10 percent increase in price results in a 50 percent decrease in quantity
demanded. What does (the absolute value of) own price elasticity of demand equal?
0.5
4
0.2
10
5
If goods X and Y are SUBSTITUTES, then which of the following could be the value of
the cross price elasticity of demand for good Y?
-1
5
-2
Neither (-1) nor (-2)
Both (-1) and (-2)
If pizza is a normal good, then which of the following could be the value of income
elasticity of demand?
0.2
6
0.8
1.4
all the mentioned numbers could be the value of income elasticity of demand.
If goods X and Y are COMPLEMENTS, the which of the following could be the value
of cross price elasticity of demand?
7 0
-1
1
Le Trung Nhan – Principles of Economics
All of the mentioned numbers could be the value of cross price elasticity of demand.
Which of the following statements about the relationship between the price elasticity of
demand and revenue is TRUE?
If demand is price elastic, then decreasing price will increase revenue.
8
If demand is price inelastic, then increasing price will decrease revenue.
If demand is perfectly inelastic, then revenue is the same at any price.
Elasticity is constant along a linear demand curve and so too is revenue.
Suppose that, if the price of a good falls from $10 to $8, total expenditure on the good
decreases. Which of the following could be the (absolute) value for the own-price
elasticity of demand, in the price range considered?
9 1.6
2.3
Both numbers 1.6 and 2.3 are correct.
Both numbers 1.6 and 2.3 are incorrect
If a demand curve is VERTICAL, then own-price elasticity of demand for this good is
equal to:
Zero (0)
10
1
Infinity
None of the answer is correct.
What does price elasticity of demand measure?
a) The relationship between price and quantity supplied
11 b) The responsiveness of quantity demanded to changes in price
c) The total revenue of a firm
d) The production cost of a good
If the price elasticity of demand for a product is greater than 1, the demand is considerd:
a) Inelastic
12 b) Unit elastic
c) Elastic
d) Perfectly inelastic
Which of the following is a determinant of price elasticity of demand?
a) The number of substitutes available
13 b) The cost of production
c) The income level of producers
d) Government taxes on production
When demand is perfectly inelastic, the demand curve is:
a) Upward sloping
14 b) Horizontal
c) Downward sloping
d) Vertical
What happens to total revenue if demand is inelastic and price increase?
a) Total revenue decreases
15 b) Total revenue increases
c) Total revenue remains unchanged
d) It depends on supply elasticity
Which of the following goods is most likely to have inelastic demand?
a) Luxury watches
16 b) Soft drinks
c) Insulin for diabetics
d) Smartphones
Price elasticity of supply measures:
17 a) The responsiveness of quantity supplied to changes in price
b) The responsiveness of quantity demanded to changes in price
Le Trung Nhan – Principles of Economics
c) The relationship between demand and supply
d) The effect of income changes on demand
If the price elasticity of supply is equal to zero, supply is said to be:
a) Perfectly elastic
18 b) Unit elastic
c) Perfectly inelastic
d) Elastic
Which factor influences the price elasticity of supply the most?
a) The availability of close substitutes
19 b) The necessity of the good
c) The time period producers have to adjust supply
d) The brand loyalty of consumers
When the price elasticity of demand is exactly 1, it is called:
a) Perfectly elastic demand
20 b) Perfectly inelastic demand
c) Unitary elastic demand
d) Relatively elastic demand
Cross-price elasticity of demand measures the responsiveness of:
a) Quantity demanded of a good to its own price change
21 b) Quantity supplied to a change in production costs
c) Quantity demanded of one good to the price change of another good
d) Price level to changes in consumer income
If the cross-price elasticity of demand between two goods is positive, the goods are?
a) Complements
22 b) Substitutes
c) Unrelated
d) Inferior goods
If an increase in the price of tea leads to a decrease in the demand for sugar, the cross-
price elasticity between tea and sugar is:
a) Positive
23
b) Negative
c) Zero
d) Infinite
Which of the following pairs is most likely to have a negative cross-price elasticity of
demand?
a) Coffee and tea
24
b) Gasoline and cars
c) Laptops and smartphones
d) Soft drinks and bottled water
If the cross-price elasticity of demand between two goods is zero, it means the goods are:
a) Strong substitutes
25 b) Weak substitutes
c) Unrelated
d) Strong complements
Income elasticity of demand measures the reponsiveness of:
a) Quantity demanded to changes in consumer income
26 b) Quantity supplied to changes in price
c) Price level to changes in production costs
d) Quantity demanded to changes in the price of another good
If the income elasticity of demand for a good is positive but less than 1, the good is
considered a:
27
a) Normal good
b) Inferior good
Le Trung Nhan – Principles of Economics
c) Luxury good
d) Giffen good
Which of the following is most likely to have a negative income elasticity of demand?
a) Organic vegetables
28 b) Designer handbags
c) Public transportation
d) Private school education
Luxury goods typically have an income elasticity of demand that is:
a) Greater than 1
29 b) Equal to 1
c) Less than 1 but greater than 0
d) Negative
If an increase in consumer income leads to a decrease in demand for a good, that good is
classified as:
a) A normal good
30
b) A Giffen good
c) An inferior good
d) A substitute good
the end.
Le Trung Nhan – Principles of Economics
