E.O.D MCQ

1. Average income increases from £20,000 p.a. to £22,000 p.a.
Quantity demanded per year

increases from 5000 to 6000 units. Which of the following is correct?
a) Demand is price inelastic c) Income elasticity is -2
b) The good is inferior d) The product has a positive income elasticity of demand.
2. The price decreases from £2,000 to £1,800. Quantity demanded per year increases from 5000 to
6000 units. Which of the following is correct?
a) The price elasticity of demand is -2. c) Income elasticity is + 0.5
b) The good is inferior d) Income elasticity is + 2
3. If the price elasticity of demand is unit then a fall in price:
a) Reduces revenue c) Increases revenue
b) Leaves revenue unchanged. d) Reduces costs
4. If the cross elasticity of demand is -2:
a) The products are substitutes and demand is cross price elastic
b) The products are substitutes and demand is cross price inelastic
c) The products are complements and demand is cross price elastic.
d) The products are complements and demand is cross price inelastic
5. The income elasticity is +2 and income increases by 20%. Sales were 5000 units, what will they
be now?
a) 3000 b) 7000. c) 5500 d) 4500
6. The price elasticity of demand is a negative number this means:
a) Demand is price elastic
b) Demand is price inelastic
c) The demand curve is downward sloping.
d) An increase in income will reduce the quantity demanded
7. Price increases from 10 to 12 pence and the price elasticity of demand is -0.5. The quantity
demanded was 500 units. What will it be now?
a) 550 units b) 500 units c) 450 units. d) 490 units
8. If demand is price inelastic:

a) An increase in price must raise profits
b) An increase in price decreases revenue
c) An increase in price increases revenue.
d) A decrease in price reduces sales
9. For an inferior good with a downward sloping demand curve:

a) The price elasticity of demand is negative; the income elasticity of demand is negative.
b) The price elasticity of demand is positive; the income elasticity of demand is negative
c) The price elasticity of demand is negative; the income elasticity of demand is positive
d) The price elasticity of demand is positive; the income elasticity of demand is positive
10.For a normal good with a downward sloping demand curve:
a) The price elasticity of demand is negative; the income elasticity of demand is negative
b) The price elasticity of demand is positive; the income elasticity of demand is negative
c) The price elasticity of demand is negative; the income elasticity of demand is positive.
d) The price elasticity of demand is positive; the income elasticity of demand is positive
Question 1
Average income increases from £20,000 p.a. to £22,000 p.a. Quantity demanded per year increases from
5000 to 6000 units. Which of the following is correct?
You did not answer the question.
Correct answer:
d) The product has a positive income elasticity of demand
Feedback:
The percentage change in demand is +20%; the percentage change in income is +10%. This means the
product is normal because demand rises with more income and has an income elasticity of +2.
Page reference: 72
Question 2
The price decreases from £2,000 to £1,800. Quantity demanded per year increases from 5000 to 6000
units. Which of the following is correct?
Correct answer:
a) The price elasticity of demand is -2
Feedback:
The percentage change in demand is +20%; the percentage change in price is -10% so the price elasticity
of demand is -2.
Page reference: 59
Question 3
If the price elasticity of demand is unit then a fall in price:
Correct answer:
b) Leaves revenue unchanged
Feedback:
This means the percentage change in quantity demanded equals the percentage change in price so price
changes will not alter the revenue.
Page reference: 70
Question 4
If the cross elasticity of demand is -2:
Correct answer:
c) The products are complements and demand is cross price elastic
Feedback:
This means that e.g. a 10% increase in the price of one product reduces the quantity demanded of another
product by 20%; the products are complements and the cross price elasticity is elastic (because the effect
on quantity demanded is greater than the change in price in percentages).
Page reference: 76
Question 5
The income elasticity is +2 and income increases by 20%. Sales were 5000 units, what will they be now?
Correct answer:
b) 7000
Feedback:
This means that a percentage increase in income will lead to an increase in quantity demanded that is
twice as great; this means sales will increase by 40% to 7000 units.
Page reference: 72
Question 6
The price elasticity of demand is a negative number this means:
Correct answer:
c) The demand curve is downward sloping
Feedback:
This means that an increase in price leads to a fall in quantity demanded; this means the demand curve is
downward sloping. We cannot tell how responsive the quantity demanded from this, only that price and
quantity demanded are inversely related.
Page reference: 58
Question 7
Price increases from 10 to 12 pence and the price elasticity of demand is -0.5. The quantity demanded
was 500 units. What will it be now?
Correct answer:
c) 450 units
Feedback:
This means that any given percentage fall in price leads to an increase in quantity demanded that is half as
much; a 20% price increase will reduce the quantity demanded by 10%. This means the quantity
demanded will be 450 units.
Page reference: 60
Question 8
If demand is price inelastic:
Correct answer:
c) An increase in price increases revenue
Feedback:
This means that the percentage change in quantity demanded is less than the percentage change in price;
this means a price increase will increase revenue.
Page reference: 59
Question 9
For an inferior good with a downward sloping demand curve:
Correct answer:
a) The price elasticity of demand is negative; the income elasticity of demand is negative.
Feedback:
For an inferior good demand falls as income increases. The quantity demanded falls as price increases;
this means the income elasticity and the price elasticity will both be negative.
Page reference: 72
Question 10
For a normal good with a downward sloping demand curve:
Correct answer:
c) The price elasticity of demand is negative; the income elasticity of demand is positive.
Feedback:
For a normal good demand increases as income increases and the quantity demanded falls as price
increases.
Page reference: 74

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1. Average income increases from £20,000 p.a. to £22,000 p.a.

Quantity demanded per year

8. If demand is price inelastic:

9. For an inferior good with a downward sloping demand curve:

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