Elasticity of Demand - Questions

1. When elasticity is numerically less than one, demand is said to be:

a. elastic.
b. inelastic.
c. unit elastic.
d. perfectly inelastic.

2. A perfectly inelastic demand:

a. can be illustrated with a vertical demand curve.
b. can be illustrated with a horizontal demand curve.
c. has a value of infinity.
d. has a value of one.

3. If the price of petrol increases from 70 pence to 77 pence per litre, and as a
result the quantity demanded decreases from 1000 to 995 litres, the price
elasticity of demand is what?
a. –0.05
b. –0.5
c. +5
d. –5

4. Which of the following statements is Incorrect?

a. When elasticity of demand exceeds unity, a fall in price increases total
spending on the good and a rise in price reduces spending.
b. When elasticity is less than unity, a fall in price reduces total spending on
the good and a rise in price increases it.
c. When elasticity of demand is unity, a rise, or a fall in price leaves total
spending on the good unaffected.
d. None – all the statements are correct.

5. Suppose that 50 units of a good are demanded at a price of $1 per unit. A

reduction in price to $0.20 results in an increase in quantity demanded to 70
units. Using the average formula, show that these data yield a price elasticity
of 0.25. By what percentage would a 10 percent rise in the price reduce the
quantity demanded, assuming price elasticity remains constant along the
demand curve?

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