1.2.3 Price, income and cross elasticities of demand Quiz: Pearson Edexcel Economics, Unit 1

The 20 questions

1. Price elasticity of demand (PED) measures the responsiveness of quantity demanded to changes in what?

   • Substitute prices
   • Price
   • Consumer income
   • Production costs

2. A price rises by 10 per cent and quantity demanded falls by 25 per cent. What is the PED?

   • -0.4
   • -250
   • -2.5
   • -1.5

3. A price falls by 5 per cent, causing quantity demanded to rise by 2 per cent. What is the PED?

   • -2.5
   • -0.4
   • -1.0
   • -0.2

4. Which absolute value of price elasticity of demand represents unitary elasticity?

   • 1
   • 0.5
   • Infinity
   • 0

5. If a good has an income elasticity of demand of +2.0, how is it classified?

   • Necessity good
   • Luxury good
   • Inferior good
   • Complementary good

6. Income rises by 4 per cent and demand for a product falls by 2 per cent. What type of good is it?

   • Inferior good
   • Normal good
   • Substitute good
   • Luxury good

7. The cross elasticity of demand between good A and good B is +1.5. What relationship exists between them?

   • Unrelated goods
   • Inferior goods
   • Substitutes
   • Complements

8. Price of good B rises 10 per cent; demand for good A falls 6 per cent. What is the XED?

   • -1.6
   • -0.6
   • +1.6
   • +0.6

9. Which factor makes the price elasticity of demand for a good more elastic?

   • Many close substitutes
   • Necessity status
   • High brand loyalty
   • Few close substitutes

10. Which factor makes the price elasticity of demand for a good more inelastic?

    • High price proportion
    • Few close substitutes
    • Long time period
    • Many close substitutes

11. If a firm with price elastic demand cuts its price, what happens to total revenue?

    • Falls
    • Rises
    • Falls to zero
    • Stays constant

12. If a firm with price inelastic demand raises its price, what happens to total revenue?

    • Falls
    • Stays constant
    • Rises
    • Falls to zero

13. Price falls from £10 to £8 and sales rise from 40 to 60 units. What is the demand elasticity?

    • Price elastic
    • Unitary elastic
    • Perfectly inelastic
    • Price inelastic

14. What happens to tax revenue when government increases indirect tax on a good with inelastic demand?

    • Remains unchanged
    • Increases
    • Falls to zero
    • Decreases

15. What type of good experiences a percentage increase in demand greater than the percentage increase in income?

    • Complementary good
    • Inferior good
    • Basic necessity
    • Luxury good

16. According to cross elasticity of demand, which good is a complement to a car?

    • Bicycle
    • Train ticket
    • Bus travel
    • Petrol

17. Why does a government tax goods with inelastic demand to maximise tax revenue?

    • Sales fall sharply
    • Demand shifts right
    • Supply shifts left
    • Sales fall slightly

18. Price rises by 5% and quantity demanded falls by 1%. What is the price elasticity of demand?

    • -2.0
    • -5.0
    • -0.5
    • -0.2

19. Demand falls by 12% when income falls by 4%. What is the income elasticity of demand?

    • +0.33
    • +3
    • -3
    • -0.33

20. Which pair of goods has a negative cross elasticity of demand?

    • Butter and margarine
    • Printers and ink
    • Tea and coffee
    • Beef and pork

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