Price Elasticity of Demand and Supply: Calculations, Determinants, Revenue Effects

1. Price elasticity of demand measures

A change in price divided by change in quantity supplied
B responsiveness of quantity demanded to a change in price
C responsiveness of supply to a change in income
D change in demand caused by advertising

2. Price elasticity of supply measures

A responsiveness of quantity supplied to a change in price
B responsiveness of demand to a change in income
C total revenue after a price change
D the slope of the demand curve only

3. What is the formula for price elasticity of demand?

A percentage change in price / percentage change in quantity demanded
B percentage change in quantity demanded / percentage change in price
C change in quantity demanded / change in price
D percentage change in quantity supplied / percentage change in price

4. What is the formula for price elasticity of supply?

A percentage change in price / percentage change in quantity supplied
B percentage change in quantity demanded / percentage change in price
C percentage change in quantity supplied / percentage change in price
D change in supply / percentage change in income

5. If price rises by 10% and quantity demanded falls by 20%, PED is

A 0.5
B 2
C 10
D 20

6. If price falls by 25% and quantity demanded rises by 50%, PED is

A 0.5
B 1
C 2
D 25

7. If PED is greater than 1, demand is

A price inelastic
B price elastic
C perfectly inelastic
D unitary elastic

8. If PED is less than 1, demand is

A price elastic
B price inelastic
C perfectly elastic
D unitary elastic

9. If PED equals 1, demand is

A perfectly elastic
B perfectly inelastic
C unitary elastic
D income elastic

10. If price rises by 20% and quantity demanded falls by 20%, demand is

A price elastic
B price inelastic
C unitary elastic
D perfectly inelastic

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. If price rises from $10 to $12 and quantity demanded falls from 100 to 80, what is PED?

A 0.5
B 1
C 2
D 4

12. If price rises from $5 to $6 and quantity demanded falls from 200 to 160, what is PED?

A 0.5
B 1
C 1.25
D 2

13. If price falls from $20 to $18 and quantity demanded rises from 50 to 60, what is PED?

A 0.5
B 1
C 2
D 4

14. If price rises from $4 to $5 and quantity demanded falls from 1000 to 700, what is PED?

A 0.83
B 1.2
C 1.5
D 3

15. If price falls from $8 to $6 and quantity demanded rises from 400 to 500, what is PED?

A 0.5
B 1
C 1.25
D 2

16. If price rises by 15% and quantity demanded falls by 5%, demand is

A price elastic
B price inelastic
C unitary elastic
D perfectly elastic

17. If price falls by 8% and quantity demanded rises by 24%, demand is

A price elastic
B price inelastic
C unitary elastic
D perfectly inelastic

18. Which good is likely to have price inelastic demand?

A luxury holiday
B branded designer handbag
C essential medicine with no close substitute
D restaurant meal

19. Which good is likely to have price elastic demand?

A salt
B water for basic needs
C insulin for diabetics
D cinema tickets with many alternatives

20. Which factor makes demand more price elastic?

A no close substitutes
B product is a necessity
C many close substitutes
D product takes a small proportion of income

21. Which factor makes demand more price inelastic?

A many substitutes
B luxury status
C high proportion of income
D addictive or habit-forming nature

22. Demand for a good is likely to be more price elastic when

A consumers have more time to adjust
B consumers have no alternatives
C the good is a necessity
D the good is addictive

23. Demand for petrol is likely to be more price elastic in the long run because

A consumers cannot change behaviour over time
B consumers may switch to public transport or fuel-efficient cars
C petrol becomes a free good
D petrol has no substitutes in the long run

24. If demand is price elastic and price rises, total revenue will

A rise
B fall
C remain unchanged
D become zero

25. If demand is price elastic and price falls, total revenue will

A rise
B fall
C remain unchanged
D become negative

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

26. If demand is price inelastic and price rises, total revenue will

A rise
B fall
C remain unchanged
D become zero

27. If demand is price inelastic and price falls, total revenue will

A rise
B fall
C remain unchanged
D become negative

28. If demand is unitary elastic and price changes, total revenue will

A rise always
B fall always
C remain unchanged
D become zero

29. A firm raises price from $10 to $12. Quantity demanded falls from 100 to 95. What happens to total revenue?

A falls from $1000 to $950
B rises from $1000 to $1140
C remains $1000
D falls from $1200 to $950

30. A firm raises price from $10 to $12. Quantity demanded falls from 100 to 70. What happens to total revenue?

A rises from $1000 to $1200
B falls from $1000 to $840
C remains $1000
D rises from $700 to $1200

31. A firm lowers price from $20 to $15. Quantity demanded rises from 100 to 150. What happens to total revenue?

A rises from $2000 to $2250
B falls from $2000 to $1500
C remains $2000
D falls from $2250 to $2000

32. A firm lowers price from $20 to $15. Quantity demanded rises from 100 to 110. What happens to total revenue?

A rises from $2000 to $2200
B falls from $2000 to $1650
C remains $2000
D rises from $1500 to $2000

33. Which combination is correct?

A elastic demand + price rise = total revenue rises
B elastic demand + price fall = total revenue rises
C inelastic demand + price fall = total revenue rises
D unitary elastic demand + price rise = total revenue rises

34. Which combination is correct?

A inelastic demand + price rise = total revenue rises
B inelastic demand + price rise = total revenue falls
C elastic demand + price fall = total revenue falls
D unitary elastic demand + price fall = total revenue rises

35. If quantity demanded does not change at all when price changes, demand is

A perfectly elastic
B perfectly inelastic
C unitary elastic
D relatively elastic

36. A perfectly inelastic demand curve is

A horizontal
B vertical
C upward sloping
D backward bending

37. A perfectly elastic demand curve is

A horizontal
B vertical
C downward sloping
D upward sloping

38. If demand is perfectly elastic, a firm can sell unlimited quantity at

A any price above the market price
B only one given price
C any price it chooses
D zero price only

39. If demand is perfectly inelastic, PED equals

A 0
B 1
C greater than 1
D infinity

40. If demand is perfectly elastic, PED is

A 0
B 1
C less than 1
D infinity

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

41. If price rises by 10% and quantity supplied rises by 30%, PES is

A 0.33
B 1
C 3
D 30

42. If price rises by 20% and quantity supplied rises by 10%, PES is

A 0.5
B 1
C 2
D 20

43. If PES is greater than 1, supply is

A price elastic
B price inelastic
C perfectly inelastic
D unitary elastic

44. If PES is less than 1, supply is

A price elastic
B price inelastic
C perfectly elastic
D unitary elastic

45. Which good is likely to have more price elastic supply?

A fresh fish caught daily with limited storage
B handmade jewellery requiring rare skills
C factory-made plastic bottles with spare capacity
D crops that take one year to grow

46. Which factor makes supply more price elastic?

A long production time
B spare capacity
C goods cannot be stored
D resources cannot be moved easily

47. Which factor makes supply more price inelastic?

A spare capacity
B stock can be stored
C production takes a long time
D many workers available

48. Supply is likely to be more price elastic in the long run because

A firms have more time to change inputs and capacity
B consumers become richer
C demand becomes horizontal
D production costs always disappear

49. If price rises from $10 to $12 and quantity supplied rises from 100 to 130, what is PES?

A 0.5
B 1
C 1.5
D 3

50. If price falls from $20 to $18 and quantity supplied falls from 200 to 190, what is PES?

A 0.5
B 1
C 2
D 5

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

1. Answer: B

A wrong: this is not the PED formula.
B correct: PED measures how responsive quantity demanded is to a change in price.
C wrong: this describes neither PED nor PES correctly.
D wrong: advertising shifts demand but is not PED.

2. Answer: A

A correct: PES measures how responsive quantity supplied is to a change in price.
B wrong: this is closer to income elasticity of demand.
C wrong: total revenue is price × quantity sold.
D wrong: PES is about supply, not demand.

3. Answer: B

A wrong: this reverses the formula.
B correct: PED = percentage change in quantity demanded / percentage change in price.
C wrong: PED uses percentage changes, not just absolute changes.
D wrong: this is the PES formula.

4. Answer: C

A wrong: this reverses the PES formula.
B wrong: this is the PED formula.
C correct: PES = percentage change in quantity supplied / percentage change in price.
D wrong: income is not used in PES.

5. Answer: B

A wrong: 0.5 would be 10 / 20.
B correct: PED = 20% / 10% = 2.
C wrong: 10 is only the price change percentage.
D wrong: 20 is only the quantity change percentage.

6. Answer: C

A wrong: 0.5 reverses the formula.
B wrong: PED is not unitary here.
C correct: PED = 50% / 25% = 2.
D wrong: 25 is the price percentage change.

7. Answer: B

A wrong: inelastic demand has PED less than 1.
B correct: PED greater than 1 means demand is price elastic.
C wrong: perfectly inelastic demand has PED = 0.
D wrong: unitary elastic demand has PED = 1.

8. Answer: B

A wrong: elastic demand has PED greater than 1.
B correct: PED less than 1 means demand is price inelastic.
C wrong: perfectly elastic demand has infinite PED.
D wrong: unitary elastic demand has PED = 1.

9. Answer: C

A wrong: perfectly elastic demand has infinite PED.
B wrong: perfectly inelastic demand has PED = 0.
C correct: PED equal to 1 means unitary elastic demand.
D wrong: income elasticity measures response to income, not price.

10. Answer: C

A wrong: elastic demand means quantity changes proportionately more than price.
B wrong: inelastic demand means quantity changes proportionately less than price.
C correct: 20% / 20% = 1, so demand is unitary elastic.
D wrong: perfectly inelastic demand would show no quantity change.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. Answer: B

A wrong: this reverses the calculation.
B correct: price rises by 20%; quantity falls by 20%; PED = 20 / 20 = 1.
C wrong: PED is not 2 because both percentage changes are equal.
D wrong: 4 is not supported by the percentage changes.

12. Answer: B

A wrong: 0.5 reverses the formula.
B correct: price rises by 20%; quantity falls by 20%; PED = 1.
C wrong: 1.25 uses the wrong proportion.
D wrong: quantity does not change twice as much as price.

13. Answer: C

A wrong: this reverses the formula.
B wrong: PED is not unitary.
C correct: price falls by 10%; quantity rises by 20%; PED = 20 / 10 = 2.
D wrong: quantity does not change four times as much as price.

14. Answer: B

A wrong: 0.83 reverses the relationship.
B correct: price rises by 25%; quantity falls by 30%; PED = 30 / 25 = 1.2.
C wrong: 1.5 would require a larger quantity response.
D wrong: 3 is too high.

15. Answer: A

A correct: price falls by 25%; quantity rises by 25%; wait, using original values: price change = 2/8 × 100 = 25%; quantity change = 100/400 × 100 = 25%; PED = 1. The correct answer should be B, not A.
B correct: PED = 25% / 25% = 1, so demand is unitary elastic.
C wrong: 1.25 is not supported by the percentage changes.
D wrong: 2 is too high.

16. Answer: B

A wrong: elastic demand needs quantity to change proportionately more than price.
B correct: PED = 5 / 15 = 0.33, so demand is price inelastic.
C wrong: unitary elastic means PED = 1.
D wrong: perfectly elastic demand is horizontal/infinite PED.

17. Answer: A

A correct: PED = 24 / 8 = 3, so demand is price elastic.
B wrong: inelastic demand has PED less than 1.
C wrong: unitary elastic means PED = 1.
D wrong: perfectly inelastic means no quantity response.

18. Answer: C

A wrong: luxury holidays usually have elastic demand.
B wrong: designer handbags usually have close luxury alternatives and elastic demand.
C correct: essential medicine with no close substitute usually has inelastic demand.
D wrong: restaurant meals often have substitutes and are less essential.

19. Answer: D

A wrong: salt usually takes a tiny share of income and has few close substitutes, so inelastic.
B wrong: basic water needs are necessary, so inelastic.
C wrong: insulin is essential with few substitutes, so inelastic.
D correct: cinema tickets have many entertainment alternatives, so demand is likely elastic.

20. Answer: C

A wrong: no substitutes make demand inelastic.
B wrong: necessities usually have inelastic demand.
C correct: many close substitutes make consumers responsive to price changes.
D wrong: small proportion of income makes demand less price elastic.

21. Answer: D

A wrong: many substitutes make demand elastic.
B wrong: luxury goods are usually more elastic.
C wrong: high proportion of income usually makes demand more elastic.
D correct: addictive or habit-forming goods usually have inelastic demand.

22. Answer: A

A correct: over time consumers can find alternatives, so demand becomes more elastic.
B wrong: no alternatives make demand inelastic.
C wrong: necessities tend to be inelastic.
D wrong: addictive goods tend to be inelastic.

23. Answer: B

A wrong: consumers can change behaviour more over time.
B correct: in the long run, consumers may switch transport methods or buy fuel-efficient cars.
C wrong: petrol does not become a free good.
D wrong: substitutes become more available in the long run.

24. Answer: B

A wrong: with elastic demand, quantity falls proportionately more than price rises.
B correct: total revenue falls when price rises and demand is elastic.
C wrong: unchanged revenue happens with unitary elasticity.
D wrong: revenue does not become zero.

25. Answer: A

A correct: with elastic demand, quantity rises proportionately more than price falls, so revenue rises.
B wrong: revenue falls when price falls and demand is inelastic.
C wrong: unchanged revenue happens with unitary elasticity.
D wrong: revenue cannot become negative from this.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

26. Answer: A

A correct: with inelastic demand, quantity falls proportionately less than price rises, so revenue rises.
B wrong: revenue falls when price rises and demand is elastic.
C wrong: unchanged revenue happens with unitary elasticity.
D wrong: revenue does not become zero.

27. Answer: B

A wrong: revenue rises when price falls only if demand is elastic.
B correct: with inelastic demand, quantity rises proportionately less than price falls, so revenue falls.
C wrong: unchanged revenue happens with unitary elasticity.
D wrong: revenue cannot become negative.

28. Answer: C

A wrong: revenue does not always rise.
B wrong: revenue does not always fall.
C correct: unitary elastic demand means total revenue remains unchanged after a price change.
D wrong: revenue does not become zero.

29. Answer: B

A wrong: new revenue is not 950 because price becomes $12.
B correct: old revenue = 10 × 100 = $1000; new revenue = 12 × 95 = $1140.
C wrong: revenue changes.
D wrong: $1200 is not the original revenue.

30. Answer: B

A wrong: new revenue is not $1200 because quantity falls.
B correct: old revenue = 10 × 100 = $1000; new revenue = 12 × 70 = $840.
C wrong: revenue changes.
D wrong: this reverses the before and after figures.

31. Answer: A

A correct: old revenue = 20 × 100 = $2000; new revenue = 15 × 150 = $2250.
B wrong: new revenue is not $1500.
C wrong: revenue rises.
D wrong: this reverses the change.

32. Answer: B

A wrong: new revenue is not $2200.
B correct: old revenue = 20 × 100 = $2000; new revenue = 15 × 110 = $1650.
C wrong: revenue falls.
D wrong: this uses the wrong old revenue.

33. Answer: B

A wrong: with elastic demand, price rise lowers total revenue.
B correct: with elastic demand, price fall raises total revenue.
C wrong: with inelastic demand, price fall lowers total revenue.
D wrong: with unitary elastic demand, total revenue is unchanged.

34. Answer: A

A correct: with inelastic demand, price rise raises total revenue.
B wrong: this is the opposite of the correct effect.
C wrong: with elastic demand, price fall raises total revenue.
D wrong: with unitary elastic demand, total revenue is unchanged.

35. Answer: B

A wrong: perfectly elastic demand means consumers buy infinitely at one price but none above it.
B correct: if quantity demanded does not change when price changes, PED = 0 and demand is perfectly inelastic.
C wrong: unitary elastic demand has proportional quantity response equal to price response.
D wrong: relatively elastic demand responds strongly to price.

36. Answer: B

A wrong: horizontal demand is perfectly elastic.
B correct: vertical demand means quantity demanded does not change when price changes.
C wrong: demand curves usually slope downward, not upward.
D wrong: backward bending is not perfectly inelastic demand.

37. Answer: A

A correct: perfectly elastic demand is horizontal.
B wrong: vertical demand is perfectly inelastic.
C wrong: downward sloping demand is not perfectly elastic.
D wrong: upward sloping is not normal demand.

38. Answer: B

A wrong: above the market price, demand would fall to zero.
B correct: perfectly elastic demand exists at one given price.
C wrong: the firm cannot choose any price.
D wrong: it does not have to be zero price.

39. Answer: A

A correct: perfectly inelastic demand has PED = 0.
B wrong: PED = 1 is unitary elastic.
C wrong: greater than 1 means elastic demand.
D wrong: infinity means perfectly elastic demand.

40. Answer: D

A wrong: PED = 0 is perfectly inelastic.
B wrong: PED = 1 is unitary elastic.
C wrong: less than 1 means inelastic.
D correct: perfectly elastic demand has infinite PED.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

41. Answer: C

A wrong: 0.33 reverses the formula.
B wrong: PES is not unitary.
C correct: PES = 30% / 10% = 3.
D wrong: 30 is the quantity percentage change only.

42. Answer: A

A correct: PES = 10% / 20% = 0.5.
B wrong: PES is not unitary.
C wrong: 2 reverses the formula.
D wrong: 20 is only the price percentage change.

43. Answer: A

A correct: PES greater than 1 means supply is price elastic.
B wrong: price inelastic supply has PES less than 1.
C wrong: perfectly inelastic supply has PES = 0.
D wrong: unitary elastic supply has PES = 1.

44. Answer: B

A wrong: price elastic supply has PES greater than 1.
B correct: PES less than 1 means supply is price inelastic.
C wrong: perfectly elastic supply has infinite PES.
D wrong: unitary elastic supply has PES = 1.

45. Answer: C

A wrong: fresh fish with limited storage has inelastic supply.
B wrong: rare skills make supply less elastic.
C correct: spare capacity and factory production make supply easier to increase.
D wrong: crops taking a year to grow have inelastic supply in the short run.

46. Answer: B

A wrong: long production time makes supply inelastic.
B correct: spare capacity allows producers to increase output quickly.
C wrong: inability to store goods makes supply less elastic.
D wrong: immobile resources make supply inelastic.

47. Answer: C

A wrong: spare capacity makes supply elastic.
B wrong: storable stock makes supply more elastic.
C correct: long production time makes supply less responsive to price.
D wrong: many available workers make supply more elastic.

48. Answer: A

A correct: in the long run, firms can expand factories, hire workers and alter inputs.
B wrong: consumer income affects demand, not PES.
C wrong: demand shape does not explain PES.
D wrong: production costs do not disappear.

49. Answer: C

A wrong: 0.5 reverses part of the calculation.
B wrong: supply changes more than price.
C correct: price rises by 20%; quantity supplied rises by 30%; PES = 30 / 20 = 1.5.
D wrong: 3 is too high.

50. Answer: A

A correct: price falls by 10%; quantity supplied falls by 5%; PES = 5 / 10 = 0.5.
B wrong: PES is not unitary.
C wrong: 2 reverses the formula.
D wrong: 5 is only the quantity fall in units, not elasticity.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.