AP Micro AP Micro Elasticity

Question 1

If the price of a good rises by 10% and quantity demanded falls by 20%, the price elasticity of demand is:

Accepted Answer

2.0

Answer

PED = % change in quantity demanded / % change in price = 20% / 10% = 2.0 (elastic).

Question 2

A good with a price elasticity of demand equal to 0.3 is considered:

Accepted Answer

Inelastic

Answer

When PED < 1, demand is inelastic, meaning consumers are relatively unresponsive to price changes.

Question 3

Which of the following goods is most likely to have highly inelastic demand?

Accepted Answer

Insulin for diabetics

Answer

Insulin is a necessity with no close substitutes, making its demand highly inelastic.

Question 4

If a 5% increase in consumer income leads to a 10% increase in demand for a good, the income elasticity of demand is:

Accepted Answer

2.0

Answer

Income elasticity = % change in quantity demanded / % change in income = 10% / 5% = 2.0.

Question 5

A negative income elasticity of demand indicates the good is a(n):

Accepted Answer

Inferior good

Answer

Inferior goods have negative income elasticity because demand falls as income rises.

AP Practice Test