Month: December 2017

A 2% cut in price leads to a 6% increase in sales.

What is the price elasticity of demand?

Select ONE answer:

1. +3
2. +0.333
3. -3
4. -0.333
5. 30

Show your workings to arrive at your answer, and explain and justify your reasons:
……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This is multiple choice question is suitable for Economics KS5 classes.

The answer is 3 – The formula for calculating the price elasticity of demand is: Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price. If PED > 1, then demand responds more than proportionately to a change in price i.e. demand is elastic. For example, if a 10% increase in the price of a good leads to a 30% drop in demand. The price elasticity of demand for this price change is –3. In this example PED is equal to +6% / – 2% or -3

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For a price-inelastic product?

Select ONE answer:

1. Demand never changes
2. Demand does not change with income
3. You can always charge the highest price in the market
4. Demand does not change with price
5. The change in quantity demanded is proportionately less than the change in price (in percentages)

Give the equation for income elasticity of demand:
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This is multiple choice question is suitable for Economics KS5 classes.

The answer is 5 – If PED is between 0 and 1 (i.e. the % change in demand from A to B is smaller than the percentage change in price), then demand is inelastic.

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The price of a product is likely to be lower if?

Select ONE answer:

1. Demand is price inelastic
2. There is limited competition
3. It is in a niche market
4. The product has a USP
5. Entry into the market is easy

Explain and justify your answer:
……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This is multiple choice question is suitable for Economics KS5 classes.

The answer is 5 – If entry into a market is easy then competitors can come in because there are lower barriers to entry and charge a price lower than the incumbents and capture market share which will require a matching action from the incumbents to maintain their market share.

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If revenue falls after a price increase, the price elasticity of demand is?

Select ONE answer:

1. Zero
2. 1
3. Less than 1
4. More than 1
5. Positive

What is the value of the price elasticity of demand is price inelastic:
……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This is multiple choice question is suitable for Economics KS5 classes.

The answer is 4 – If PED > 1, then demand responds more than proportionately to a change in price i.e. demand is elastic. For example, if a 10% increase in the price of a good leads to a 30% drop in demand. The price elasticity of demand for this price change is –3

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An increase in the price of 10% has led to a fall in sales of 20%.

The price elasticity of demand is?

Select ONE answer:

1. -2
2. +2
3. -0.2
4. -0.5
5. +0.5

Is this price elastic or price in-elastic and why:
……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This is multiple choice question is suitable for Economics KS5 classes.

The answer is 1 – The formula for calculating the price elasticity of demand is: Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price. If a small change in price is accompanied by a large change in quantity demanded, the product is said to be elastic (or responsive to price changes). Here PED = % change in QD of -20% / % change in P of 10% or -2.

This work is licensed under a Creative Commons Attribution 4.0 International License.