## Elasticity of demand - self-test

1

##### Price elasticity definition

Which of the following is the formula we use for price elasticity?

 a) The percentage change in price caused by a change in demand b) The percentage change in demand caused by a change in price c) The change in demand caused by a change in market tastes d) The change in both price and demand are the same Yes, that's correct. Well done. This is the correct definition of price elasticity of demand.No, that's not right. The correct answer is B and it's always worth knowing this. A is the very opposite and is therefore incorrect. C is one of the causes of a change in demand, whilst D is what is known as unitary elasticity.Your answer has been saved.

2

##### Inelastic

A product is said to be inelastic when its:

 a) Change in price is larger than its change in demand b) Change in price is less than its change in demand c) The demand of the product is sensitive to changes in income d) The price of the product is strongly influenced by small changes in its costs Yes, that's correct. Well done. This is the correct definition of inelastic demand.No, that's not right. The correct answer is A. B is what we call an elastic product and C means that the product is income elastic. D suggests that the product is produced with a small profit margin and will have to carefully watch for any potential cost increases.Your answer has been saved.

3

##### Inelastic

Which of the following would NOT be an influence on the price elasticity of a product?

 a) The number of close substitutes the product has b) Whether the product is a necessity or a luxury c) The amount of income spent on the product d) The average age of the population Yes, that's correct. Well done. This is possibly a piece of market information some producers would want to know, but ALL of the others would influence the elasticity of a product.No, that's not right. The correct answer is D as this is possibly a piece of market information some producers would want to know, but ALL of the others would influence the elasticity of a product.Your answer has been saved.

4

##### Revenue and elasticity

The impact on a firm's total revenue of an increase in price in an elastic market would be:

 a) An increase b) Nothing c) A fall d) A switch away from the product by a certain age group within its customers Yes, that's correct. Well done. An increase in price of an elastic product would result in demand falling by more than the price rise and so total revenue would fall.No, that's not right. The correct answer is C as an increase in price of an elastic product would result in demand falling by more than the price rise and so total revenue would fall. A is wrong as it is the opposite of what would happen. B is also incorrect as a standstill situation would not arise and D might arise but then again it might not.Your answer has been saved.

5

##### Elasticity and product life cycle

In which phase of the product life cycle would a product be MORE likely to be inelastic?

 a) During its launch b) As it reached maturity c) When it is in its growth stage d) When it starts to see its demand fall Yes, that's correct. Well done. The product will usually be bought by early adopters at this stage who will be less concerned about the price and more about the nature of the product. There will also be little competition at this stage.No, that's not right. The correct answer is A as the product will usually be bought by early adopters at this stage who will be less concerned about the price and more about the nature of the product. There will also be little competition at this stage. C is not correct as an established product will tend to have more competition and therefore be more elastic. This is also true of B. At this stage it is more likely that changes in promotion or of the product itself e.g. new improved formula will be used. Alas D is also wrong as its more likely that prices might be cut not raised.Your answer has been saved.