Lesson 1.2.4

1.2.4 Price elasticity of demand Quiz: Pearson Edexcel Business, Unit 1

20 questions

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Lesson 1.2.4, Price elasticity of demand: 20 multiple choice questions for the Pearson Edexcel Business (9BS0), Unit 1: Marketing and people, written with Revision Ninja.

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The 20 questions

  1. What is divided by percentage change in price to calculate PED?

    • Percentage quantity change
    • Percentage cost change
    • Percentage income change
    • Total revenue change

  2. A price rise of 10% causes quantity demanded to fall by 25%. What is the PED?

    • 2.5
    • -2.5
    • -25
    • -0.4

  3. A 20% price rise reduces quantity demanded by 5%. What is the PED?

    • -0.25
    • -4
    • -0.05
    • -1.25

  4. What numerical PED value represents price elastic demand?

    • Greater than 1
    • Less than 1
    • Equal to 0
    • Equal to 1

  5. If a product has a PED of -0.4, raising its price will cause total revenue to do what?

    • Remain unchanged
    • Rise
    • Drop to zero
    • Fall

  6. Which factor makes demand for a product more price elastic?

    • Many close substitutes
    • Habitual consumption
    • High brand loyalty
    • Essential necessity

  7. Which factor causes demand for a product to be price inelastic?

    • Longer time period
    • Non-essential nature
    • Small income proportion
    • Many close substitutes

  8. Why does demand become more price elastic over a longer time period?

    • Incomes decrease
    • Taxes increase
    • More substitutes found
    • Supply becomes fixed

  9. If demand for a firm's product is price inelastic, how can it increase total revenue?

    • Freeze production
    • Increase advertising
    • Lower the price
    • Raise the price

  10. Price falls by 10% and quantity demanded rises by 30%. What is the PED?

    • -3
    • -0.3
    • +3
    • -30

  11. A firm sells 500 units at £20. The price rises to £22 and quantity falls to 450. What is the PED?

    • -1.0
    • -0.25
    • -2.0
    • -0.5

  12. A firm sells 400 units at £20, so revenue is £8,000. The price rises to £22 and quantity falls to 340. What happens to total revenue?

    • It falls to £7,480
    • It stays at £8,000
    • It rises to £8,480
    • It rises to £8,800

  13. If PED for a product is exactly -1, what happens to total revenue when price changes?

    • Remains unchanged
    • Falls to zero
    • Decreases
    • Increases

  14. If demand is price elastic, what happens to total revenue when price is raised?

    • It doubles
    • It stays constant
    • It falls
    • It rises

  15. What financial variable does price elasticity of demand help a business predict when changing its price?

    • Total revenue
    • Break-even point
    • Fixed costs
    • Profit margin

  16. What type of demand elasticity does a product with few close substitutes usually have?

    • Price inelastic
    • Price elastic
    • Unitary elastic
    • Income elastic

  17. What is the main long-term risk of repeatedly raising prices on an inelastic good?

    • Immediate sales collapse
    • Emergence of substitutes
    • Falling unit costs
    • Higher profit margins

  18. Revenue is £6,000 at a price of £12, and the firm then cuts price to £10 with quantity rising from 500 to 650. What is the effect on total revenue?

    • It rises to £6,500
    • It rises to £7,800
    • It remains £6,000
    • It falls to £5,000

  19. Using the midpoint or simple percentage method, a firm's PED is -0.8. If it cuts price by 5%, what is the approximate change in quantity demanded?

    • A fall of 4%
    • A rise of 6.25%
    • A rise of 4%
    • A rise of 0.8%

  20. How can a firm increase total revenue if demand for its product is price elastic?

    • Keep price constant
    • Lower the price
    • Reduce production
    • Raise the price

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