AP Microeconomics Quiz: Price Elasticity Of Demand

What this quiz covers

This quiz focuses on Price Elasticity Of Demand, giving you a quick way to practice the rules, question types, and explanations that matter most for AP Microeconomics.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

Question 1

1. perfectly elastic.
2. relatively elastic.
3. unit elastic.
4. relatively inelastic. (correct answer)

Explanation: If demand is inelastic, consumers are not very responsive to price changes. A tax increases the price paid by consumers, but the quantity demanded will fall by a relatively small percentage. This allows the government to collect substantial revenue from the large quantity of the good still being sold.

Question 2

1. decrease the price of books. (correct answer)
2. increase the price of books.
3. keep the price of books unchanged.
4. increase the quantity of books supplied.

Explanation: Since the price elasticity of demand is elastic ($|-1.8| > 1$), price and total revenue move in opposite directions. To increase total revenue, the owner must decrease the price. The resulting percentage increase in quantity sold will be larger than the percentage decrease in price.

Question 3

1. more elastic in the long run than in the short run. (correct answer)
2. more inelastic in the long run than in the short run.
3. perfectly inelastic in the short run and perfectly elastic in the long run.
4. constant over both the short run and the long run.

Explanation: One of the determinants of price elasticity is the time horizon. Consumers have more time to adjust their behavior and find substitutes or alternatives in the long run. Therefore, demand becomes more responsive to price changes, and thus more elastic, over a longer period.

Question 4

1. the purchase of a luxury good can be easily postponed when its price rises. (correct answer)
2. bread has more substitutes available to consumers than a diamond necklace.
3. consumers spend a smaller proportion of their income on luxury goods.
4. the market for necessities is more narrowly defined than the market for luxuries.

Explanation: Luxury goods have more elastic demand because they are not essential for daily life. Consumers can easily choose not to buy them or delay the purchase if the price increases. Necessities like bread must be purchased regularly, making their demand less responsive to price changes.

Question 5

1. elastic. (correct answer)
2. inelastic.
3. unit elastic.
4. perfectly inelastic.

Explanation: According to the total revenue test, if price and total revenue move in opposite directions (price decreased while total revenue increased), the demand for the good must be elastic. The percentage increase in quantity demanded was greater than the percentage decrease in price.

Question 6

1. $-1.0$ (correct answer)
2. $-0.5$
3. $-2.0$
4. $-0.1$

Explanation: The percentage change in price is (($220 -$200) / $200) * 100$-10% / 10%) = -1.0$$.

Question 7

1. A specific brand of sports car. (correct answer)
2. All automobiles.
3. Life-saving heart medication.
4. All forms of transportation.

Explanation: Price elasticity of demand is higher when the market is more narrowly defined and there are more available substitutes. A specific brand of sports car has many substitutes (other brands, other types of cars), making its demand highly elastic compared to the broader, less substitutable categories of 'all automobiles' or 'all forms of transportation'. Heart medication is a necessity with few substitutes, making it highly inelastic.

Question 8

1. Demand is more elastic at higher prices and more inelastic at lower prices. (correct answer)
2. Demand is more inelastic at higher prices and more elastic at lower prices.
3. Elasticity remains constant at all points along the demand curve.
4. Elasticity is undefined at the midpoint of the demand curve.

Explanation: On the upper portion of a linear demand curve, a given price change represents a small percentage change, while the corresponding quantity change is a large percentage change, making demand elastic. On the lower portion, the reverse is true, making demand inelastic. Elasticity changes continuously along the curve.

Question 9

1. perfectly inelastic. (correct answer)
2. perfectly elastic.
3. relatively inelastic.
4. unit elastic.

Explanation: Perfectly inelastic demand occurs when the quantity demanded remains constant regardless of any change in price. Since the patient must consume a fixed quantity, the demand is perfectly inelastic, represented by a vertical demand curve.

Question 10

1. A pack of chewing gum. (correct answer)
2. A new family car.
3. A luxury cruise ticket.
4. Designer clothing.

Explanation: Goods that constitute a very small proportion of a consumer's income tend to have highly inelastic demand. A price change for chewing gum will not significantly impact a consumer's budget, so their purchasing decision is less sensitive to price. The other items are expensive and make up a larger share of income, leading to more elastic demand.

Question 11

1. equal to -1. (correct answer)
2. greater than -1 (e.g., -0.5).
3. less than -1 (e.g., -2.0).
4. equal to zero.

Explanation: Total revenue is maximized when price elasticity of demand is unit elastic, meaning the coefficient is equal to -1. At this point, the revenue gained from a price cut is exactly offset by the revenue lost, and vice versa. This corresponds to the midpoint of a linear demand curve.

Question 12

1. responsiveness of quantity demanded to a change in price. (correct answer)
2. absolute change in quantity demanded due to a change in price.
3. impact of consumer income changes on the demand curve.
4. steepness or slope of the demand curve at a given price level.

Explanation: Price elasticity of demand is a measure of sensitivity or responsiveness. It quantifies how much the quantity demanded of a good changes in percentage terms in response to a one percent change in its price. It is distinct from slope, which measures absolute changes.

Question 13

1. Fresh green beans are a more narrowly defined category with more direct substitutes. (correct answer)
2. Vegetables are considered a luxury good, while green beans are a necessity.
3. Consumers spend a larger proportion of their income on all vegetables than on green beans alone.
4. The supply of green beans is more responsive to price changes than the supply of all vegetables.

Explanation: The availability of substitutes is a key determinant of elasticity. A narrowly defined market (fresh green beans) has many substitutes (broccoli, carrots, etc.), making its demand more elastic. A broadly defined market (all vegetables) has fewer substitutes, making its demand more inelastic.

Question 14

1. 5 percent, leaving total revenue unchanged. (correct answer)
2. less than 5 percent, causing total revenue to decrease.
3. more than 5 percent, causing total revenue to increase.
4. 5 percent, causing total revenue to decrease.

Explanation: Unit elasticity means the magnitude of the percentage change in quantity demanded is equal to the percentage change in price. A 5% price decrease will lead to a 5% quantity increase. These changes exactly offset each other, so total revenue ($P \times Q$) remains constant.

Question 15

1. elastic, and its total revenue has increased. (correct answer)
2. inelastic, and its total revenue has decreased.
3. elastic, and its total revenue has decreased.
4. inelastic, and its total revenue has increased.

Explanation: First, calculate total revenue at both prices. Initial total revenue was $10 \times 200 = \$2,000$. New total revenue is $8 \times 300 = \$2,400$. Since the price decreased and total revenue increased, the demand must be elastic according to the total revenue test.

Question 16

1. is calculated using percentage changes, and the base values for price and quantity change along the curve. (correct answer)
2. is the reciprocal of the slope, and the reciprocal changes as price changes.
3. is directly determined by consumer income, which is assumed to be different at each point.
4. measures the change in price divided by the change in quantity, which is not constant for a linear curve.

Explanation: Slope is the ratio of absolute changes ($\Delta P / \Delta Q$), which is constant for a line. Elasticity is the ratio of percentage changes ($(\%\Delta Q) / (\%\Delta P)$). The percentage change depends on the initial price and quantity, which are different at every point on the demand curve, causing elasticity to vary.

Question 17

1. $-2.0$, and demand is elastic. (correct answer)
2. $-0.5$, and demand is inelastic.
3. $-20.0$, and demand is elastic.
4. $-10.0$, and demand is inelastic.

Explanation: Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, $(-20\%) / (10\%) = -2.0$. Since the absolute value of the elasticity ($2.0$) is greater than 1, demand is elastic.

Question 18

1. perfectly elastic.
2. unit elastic.
3. price elastic.
4. price inelastic. (correct answer)

Explanation: The total revenue test states that if price and total revenue move in the same direction (both increase, in this case), the demand for the good is price inelastic. Consumers are not very responsive to the price change, so the higher price outweighs the small drop in quantity demanded.

Question 19

1. Demand is price inelastic, so a decrease in price will lead to a decrease in total revenue. (correct answer)
2. Demand is price elastic, so an increase in price will lead to a decrease in total revenue.
3. Demand is unit elastic, so any change in price will not affect total revenue.
4. The good is classified as an inferior good because its elasticity coefficient is negative.

Explanation: The absolute value of the elasticity is $0.8$, which is less than 1, indicating that demand is price inelastic. According to the total revenue test, if demand is inelastic, price and total revenue move in the same direction. Therefore, a price decrease will cause total revenue to decrease.

Question 20

1. perfectly elastic. (correct answer)
2. perfectly inelastic.
3. unit elastic.
4. downward sloping.

Explanation: In a perfectly competitive market, individual firms are price takers. This means they face a horizontal demand curve at the market price. A horizontal demand curve signifies perfectly elastic demand, as the firm would sell zero units if it charged a higher price and can sell all it wants at the market price.