IGCSE Economics – Elasticity (Standalone)

Q1. Price elasticity of demand measures:

the responsiveness of quantity demanded to a change in price the responsiveness of price to a change in demand the total demand for a product the responsiveness of supply to a change in price

Q2. Demand is price elastic when:

quantity demanded changes less than price quantity demanded does not change when price changes quantity demanded changes more than price price changes but demand stays constant

Q3. Which product is most likely to have elastic demand?

essential medicine restaurant meals basic bread tap water

Q4. Which factor is most likely to make demand more elastic?

the good is addictive the good has no close substitutes the good is a necessity there are many close substitutes

Q5. If demand is inelastic, an increase in price is most likely to cause total revenue to:

rise fall stay the same become zero

Q6. The formula for price elasticity of demand (PED) is:

% change in price ÷ % change in quantity demanded % change in quantity demanded ÷ % change in price change in quantity demanded × change in price % change in income ÷ % change in price

Q7. The price of a product rises by 10% and quantity demanded falls by 20%. What is PED?

+0.5 +2.0 −2.0 −0.5

Q8. The price falls by 8% and quantity demanded rises by 4%. What is PED?

−0.5 −2.0 +0.5 +2.0

Q9. A 15% rise in price causes a 6% fall in quantity demanded. What is PED (to 1 d.p.)?

−2.5 −1.5 −0.3 −0.4

Q10. PED is −0.2. Demand is best described as:

elastic inelastic unit elastic perfectly elastic

Q11. PED is −1.0. This means demand is:

perfectly inelastic inelastic unit elastic perfectly elastic

Q12. A firm wants to increase total revenue by raising price. This is most likely to work if demand is:

price inelastic price elastic perfectly elastic unit elastic

Price elastic demand: large fall in quantity for a small rise in price

Diagram: A relatively small rise in price leads to a large fall in quantity demanded.

Q13. What is the price elasticity of demand (PED) shown in the diagram?

−0.4 −1.25 −2.5 +2.5

Explanation:
Price rises by 20% and quantity demanded falls by 50%.
PED = %ΔQd ÷ %ΔP = −50 ÷ 20 = −2.5 (elastic demand).

Q1. Price elasticity of supply measures:

how responsive quantity supplied is to a change in price how responsive price is to a change in supply how responsive demand is to a change in income how responsive demand is to a change in price

Q2. Supply is more likely to be elastic when:

production takes a long time factors of production are fixed firms can increase output quickly and have spare capacity it is impossible to store the product

Q3. Which is likely to have inelastic supply in the short run?

manufactured toys agricultural products clothes takeaway meals

Q4. Which change would increase price elasticity of supply?

more specialised machinery that can only make one product longer time needed to expand production fewer suppliers in the market holding larger stocks of the good

Q5. The formula for price elasticity of supply (PES) is:

% change in price ÷ % change in quantity supplied % change in quantity supplied ÷ % change in price change in quantity supplied × change in price % change in quantity demanded ÷ % change in price

Q6. Price rises by 10% and quantity supplied rises by 30%. What is PES?

0.3 1.0 3.0 −3.0

Q7. Price falls by 20% and quantity supplied falls by 10%. What is PES?

0.5 2.0 −0.5 −2.0

Q8. A 5% rise in price leads to a 5% rise in quantity supplied. What is PES?

0 0.5 2.0 1.0

Q9. PES is 0.2. Supply is best described as:

elastic inelastic unit elastic perfectly elastic

Q10. PES is equal to 1. This means supply is:

perfectly inelastic inelastic unit elastic perfectly elastic

Q11. Which factor is most likely to make supply more price elastic?

firms have spare capacity and can increase output quickly production takes several years to complete factors of production are fixed goods cannot be stored

Q12. Which product is most likely to have inelastic supply in the short run?

manufactured clothing takeaway meals electronic devices agricultural products

Diagram: The left-hand diagram shows relatively inelastic supply.

Q13. Calculate the price elasticity of supply (PES) for the inelastic supply curve (left-hand diagram).

0.07 0.2 1.5 5.0

Explanation:
Price rises from £80 to £106
% change in price = (106 − 80) ÷ 80 = 26 ÷ 80 = 0.325 (32.5%)

Quantity supplied rises from 60 to 64
% change in quantity supplied = (64 − 60) ÷ 60 = 4 ÷ 60 = 0.0667 (6.67%)

PES = %ΔQs ÷ %ΔP = 0.0667 ÷ 0.325 ≈ 0.2 (inelastic supply)

Q14. A 10% rise in price leads to a 20% increase in quantity supplied and a 5% fall in quantity demanded.
Which of the following is correct?

PED = −2.0 and PES = 0.5 PED = −0.5 and PES = 2.0 PED = +2.0 and PES = −0.5 PED = −2.0 and PES = −0.5

Q1. Why might a government tax goods with inelastic demand?

tax revenue is likely to be higher demand will rise sharply firms will always reduce output it guarantees lower prices

Q2. A firm facing elastic demand is most likely to increase revenue by:

raising price producing less lowering price ignoring competitors

Q3. Why is elasticity important to producers?

it fixes interest rates it helps predict how sales respond to price changes it guarantees profits it prevents shifts in demand

Q4. Why is price elasticity of supply important to firms?

it tells firms how much tax they pay it determines consumer tastes it controls inflation it helps firms judge how quickly output can respond to price changes

Elasticity

2.6 Price elasticity of demand (PED)

2.7 Price elasticity of supply (PES)

Uses of elasticity