AP Micro Microeconomics: Supply and Demand 3

Question 1

Price elasticity of demand is defined as:

Accepted Answer

The percentage change in quantity demanded divided by the percentage change in price

Answer

Price elasticity of demand measures the responsiveness of quantity demanded to a price change, expressed as the ratio of percentage changes.

Question 2

A good with many close substitutes available will tend to have:

Accepted Answer

Elastic demand

Answer

When close substitutes are available, consumers can easily switch to alternatives when price rises, making demand more elastic.

Question 3

If a 10% increase in price leads to a 10% decrease in quantity demanded, the price elasticity of demand equals:

Accepted Answer

-1

Answer

Elasticity = % change in Qd / % change in P = -10% / 10% = -1, indicating unit elastic demand.

Question 4

Along a linear downward-sloping demand curve, as you move from higher to lower prices:

Accepted Answer

Elasticity decreases (becomes more inelastic)

Answer

Along a linear demand curve, elasticity falls as you move to lower prices because the same absolute price change becomes a smaller percentage of a larger base quantity.

Question 5

If demand for a good is perfectly inelastic, a tax placed on the good will be borne:

Accepted Answer

Entirely by consumers

Answer

With perfectly inelastic demand, consumers do not reduce quantity no matter the price, so they absorb the full tax burden.

AP Practice Test

AP Practice Test

AP Micro Microeconomics: Supply and Demand 3