IB Unit Test – Elastisities - Time 40min
Student name________________ Class____________________ Date __________________
Part 1 MCQ
1. Suppose income increases from $15,000 to $18,000, consumption of hotdogs falls by 10% and
consumption of steaks increases by 15%. Identify the true statement below.
a. Hotdogs have a YED of 5 and are an inferior good.
b. Hotdogs have a YED of −¿5 and are a normal good.
c. Steaks have a YED of 0.75 and are a normal good and a luxury.
d. Steaks have a YED of 0.75 and are a normal good and a necessity.
2. The price elasticity of supply measures the responsiveness of _______________ to changes in
____________________.
a. quantity demanded / price
b. quantity supplied / income
c. quantity supplied / quantity demanded
d. quantity supplied / price
3. If a firm needs a long time to respond to changes in the price of the good it sells, the PES value
will likely be
a. less than one but greater than zero
b. equal to one
c. greater than one
d. zero
4. If a firm finds it very easy and costless to shift their resources into and out of the production of a
good, the PES value will likely be
a. zero
b. less than one but greater than zero
c. equal to one
d. greater than one
5. If firms have limited ability to store stocks of the good they produce, the PED value will likely be
a. zero
b. less than one but greater than zero
c. equal to one
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d. greater than one
6. If firms have a relatively large amount of excess capacity, the PES for the good they produce will
likely be
a. zero
b. less than one but greater than zero
c. equal to one
d. greater than one
7. If price rises from $5 to $7 and quantity demanded falls from 20 to 16, the change in total
revenue is
a. an increase of $112
b. a fall of $8
c. an increase of $12
d. an increase of $8
8. A straight-line demand curve with a steep slope has
a. inelastic demand
b. elastic demand
c. unit elastic demand
d. an undetermined PED value without more information
9. Which of the following statements is true?
a. PED for manufactured goods tends to be elastic because they have few substitutes.
b. PED for primary commodities tends to be inelastic because they often have no
substitutes and are necessities.
c. PED for manufactured goods tends to be inelastic because they have many substitutes.
d. PED for primary commodities tends to be elastic because they often have substitutes
and are not necessities.
10. An Engel curve can be used to illustrate the concept of
a. income elasticity of demand
b. price elasticity of supply
c. the law of demand
d. price elasticity of demand.
11. A price inelastic supply curve emerges from
a. the origin of a market diagram
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b. the price axis of a market diagram
c. the quantity axis of a market diagram
d. either the price or quantity axis, but never the origin of a market diagram
12. A price elastic supply curve emerges from
a. the origin of a market diagram
b. the price axis of a market diagram
c. the quantity axis of a market diagram
d. either the price or quantity axis but never the origin of a market diagram
13. A unit elastic supply curve emerges from
a. the origin of a market diagram
b. the price axis of a market diagram
c. the quantity axis of a market diagram
d. either the price or quantity axis but never the origin of a market diagram
14. Primary commodities tend to have lower PES than manufactured goods because
a. producers of primary commodities rarely have excess capacity
b. primary commodities often take more time to produce than manufactured goods
c. primary commodities have lower prices so firms do not care to increase production
d. producers of primary commodities usually have low mobility of their factors of
production
15. At high prices and low quantities
a. percentage change in price will likely be relatively larger than a percentage change
in quantity
b. a percentage change in price will likely be relatively smaller than a percentage change in
quantity
c. the amount of change in price will likely be more than the change in quantity
d. the amount of change in price will likely be less than the change in quantity
16. (HL only) Income elastic demand can be used to explain why rising incomes over time are
associated with
a. an increasingly smaller services sector
b. an increasingly larger agricultural sector
c. an increasingly smaller manufacturing sector
d. none of the above
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MCQ answers write here
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2 10
3 11
4 12
5 13
6 14
7 15
8 16 (HL)
Part 2: Calculations
1. The price of meat increases by 10% and the quantity demanded of meat falls by 12%. Calculate
the price elasticity of demand for meat, and state if the demand for meat is price elastic or
inelastic. [1 mark]
2. Calculate price elasticity of demand (PED) for good A, for an increase in price from $3 to $6, if
quantity sold falls from 14 to 12. [2 marks]
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3. It is found that when the price of good X increased by 5%, the quantity of X supplied increased
by 2% after one month and by 7% after one year.
a) Calculate price elasticities of supply for the two time periods. [4 marks]
b) Outline in which period supply was price elastic and in which it was price inelastic. [2 marks]
c) Outline two possible factors that might account for the different elasticity values. [2 marks]
4. (HL) A cinema charges £10 per ticket and sells 350 tickets a night on average. They estimate that
the price elasticity of demand for tickets is 1.8. Calculate the change in revenue if they reduce
the ticket price to £5 [4 marks]
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Part 3: HL only
Explain why the price elasticity of demand (PED) for allergy tablets is likely to differ from the PED for
overseas holidays. [10 marks]
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