Price Elasticity

Worksheet Marking Scheme

Multiple Choice Questions (MCQs)

Question Answer Explanation
Change in quantity supplied in the short run.

PES = (% change in quantity supplied) / (% change in

price)

0.8 = (% change in quantity supplied) / [(2.20 – 2.00) /

2.00]

% change in quantity supplied = 0.08 OR 8%

Therefore, quantity supplied rises in the short run by

0.08 of 100,000 which is 8000 units.

Change in quantity supplied in the long run.

1. A
PES = (% change in quantity supplied) / (% change in
price)

1.4 = (% change in quantity supplied) / [(2.20 – 2.00) /

2.00]

% change in quantity supplied = 0.14 or 14%

Therefore, quantity supplied rises in the long run by

0.14 of 100,000 which is 14,000.

Therefore, the difference in long run and short run

change in quantity supplied is 14,000 – 8000 = 6000
units. A is the answer.
 For firms with goods that are price elastic, increasing
revenue can occur when there is a reduction in price
2. D as quantity demanded will increase by a proportion
greater than by which price falls. Therefore, D is the
answer.
The change in price for bus travel needs to be 5% to
bring about a 10% change in the quantity demanded
for bus travel.

Students can write down the formula of XED and plug

in the values of cross elasticity of demand (+2) for
bus and rail travel, and the percentage change in
3. A
quantity demanded for rail travel.

This will yield a 5% change in the price of bus travel.

Taking a look at option A, we can see the percentage
change in price is (21 – 20)/20 x 100 = 5%.

Therefore, A is the answer.

The demand curve drawn is the shape of a
rectangular hyperbola. Furthermore, the areas that
4. A show revenue are equal for both prices. This is the
demand curve of a unitary elastic good (PED= - 1). A
is the answer.
Concept. The graph is a rectangular hyperbola which
5. A
is of goods with a PED = 1.
Students can calculate the YED by using the formula.
The YED of good Z will come out to be 1.43 and D is
the answer.
6. D
Students can narrow the choices by understanding
that a YED>1 would mean that quantity demanded
will rise when incomes rise as the good would be
income elastic in nature.
Concept. Factors impacting PED are such that when
7. A
proportion of income spent is high, the responsive of
 consumers to a change in price is higher or the good
has more elastic demand.
At zero value of PED, the demand of the good will be
perfectly inelastic. Since such goods have a vertical
demand curve, quantity demanded does not change
8. D
at any price. Therefore, with a fall in price, the
revenue the firm will get at the same quantity will also
fall.
Students can calculate the percentage change in
income, percentage change in quantity demanded
for biscuits, and percentage change in quantity
demanded for coffee.
9. A
For income % change is equal to 33.33%.
For biscuits, the change is infinite.

Therefore, A is the answer as the YED is greater than

1.
10. C Concept.
The changes mentioned are consistent with what the
11. C values of PES mentioned tell us. Good X has elastic
supply and Good Y has elastic supply.
12. C Concept.
The proportion by which the quantity demanded of
the cheaper seats changes is less than the
proportion by which price change – characteristic of
a price inelastic good.
13. C
The percentage change in quantity demanded is
greater than the change in price for the expensive
seats – characteristic of price elastic goods.
14. B Concept.
A positive XED value tells us that goods are
15. B substitutes. Therefore, we have to identify the
substitutes to tea in this question.
Existence of spare capacity does result in the supply
16. B
of a good to be more elastic.
 The tax placed on the good will result in the price of
the good to increase. Since consumers are spending
more on the product relative to before, the price
17. D elasticity will be inelastic – students should
remember that total revenue increases for inelastic
goods when price decreases with the opposite being
true for elastic goods.
Students can plug in the values into the formula or
PES.

1.5 = (Percentage Change in Quantity Supplied) /

18. D
20%

Rearranging the formula and solving will gain the

answer of 30%. Therefore, D is the answer.
19. D Concept.
20. B Concept.
Students should note that the graphs show price &
total expenditure on the X and Y axis rather than price
& quantity.

Total Expenditure or Revenue rises when the price of

21. C
elastic goods fall – curve 3 shows this relationship.

Total Expedniture or Revenue stays the same at all

prices for good with a PED = -1 – curve 1 shows this
relationship.
Concept. Time lags can result in supply to be
22. D
inelastic.
There is no change in quantity demanded for the
given increase in price – characteristic of a perfectly
23. D
inelastic good with PED = 0. Therefore, D is the
answer.
PES and PED being inelastic will result in the change
in quantity demand and quantity supplied to be
24. A
minimal when a subsidy is granted. Therefore, the
amount by which the supply curve will shift and the
 vertical distance between the two curves will be
smallest. Therefore, this is the case when the
government expenditure or the amount of the
subsidy will be the smallest.
When the demand curve shifts to the right the
quantity of the good traded in the market goes up –
25. B
this can result in the revenue for a firm with an elastic
good to go up.
When the demand curve shifts to the right the
quantity of the good traded in the market goes up –
26. B
this can result in the revenue for a firm with an elastic
good to go up.
27. D Concept.
28. C Concept.
Highly skilled labour can be in small quantity. This
29. C
can result in supply to be inelastic.
30. B Concept.
Positive XED for two goods implies they are
31. C substitutes. Negative XED implies goods are
complements.
Point Z is closer to the point where the PED = 0, so it
will be more inelastic than a point further away from
the X-axis, such as point Y. Point Y is still on the side
32. D
of the demand curve when PED<1, thus it is an
inelastic point on the demand curve. D is, therefore,
the answer.
33. C Concept
PED being infinite results in a horizontal demand
curve, therefore, any quantity is sold at the market
34. D
price – supply curve shift will not result in a change in
the price.
Concept. Such a relationship can be found out using
35. B
XED.
A price elastic supply curve has the PES decreasing
36. D
as one move further along the curve.
37. D Concept.
38. C Concept.
39. C Concept.
40. A Concept.
If the quantity supplied is rising by more than the
price, the quantity traded in the market is increasing
41. B
by more than the price is increasing. Therefore, total
revenue will go up for the firm.
42. B Concept.
43. D Concept.
There is relevance of all three of the elasticities to a
44. A
firm that is trying to increase their revenue.
Concept. Non-perishable items can be stored and
45. B
have a more inelastic PES.
Students can plug in the mentioned values into the
formula for PES.
PES = (% change in quantity supplied) / (% change in
price)
46. D
2.5 = (% change in quantity supplied) / 10%

% change in quantity supplied = 25%. Therefore, D is

the answer.
The relationship of cars and petrol is such that petrol
is a complement of cars.

The change in price of petrol is 100% and that will

result in a 25% reduction in quantity demanded of
1200 cc Cars – 25% of 1000 = 2500.

47. C The 100% increase also results in a 50% reduction in

the quantity demanded of 2000 cc Cars – 50% of
5000 = 2500.

Therefore, quantity demanded falls by 2500 of cars in

general.

C is the answer.
Concept. If a good is perishable, it cannot be stored
48. D
– therefore, it has a low PES. If there is a low stock of
 a good, there are no units available to release into the
market when the price rises. Therefore, D is the
answer.
49. D Concept.
Students can calculate the percentage change in
income, percentage change in quantity demanded
for biscuits, and percentage change in quantity
demanded for coffee.
50. A
For income % change is equal to 33.33%.
For biscuits, the change is infinite.

Therefore, A is the answer as the YED is greater than

1.
51. C Concept.
The question mentions the change in car travel rather
52. D than the impact of road pricing on the demand for
cars or purchase for cars.
53. C Concept.
PES = 30% / 20% = 1.5
54. D
Therefore, D is the answer.
Concept. The firm will not be able to take advantage
55. D
of the increase in revenue that can take place.
When a subsidy is granted, the supply curve for a
good shifts to the right. The vertical distance
between the pre-subsidy and post-subsidy supply
curve tells us the amount of subsidy per unit.
However, the amount of expenditure by the
government on the subsidy depends on how much
56. D quantity demanded will increase after the supply
curve shifts to the right.

When demand is elastic, quantity demanded will rise

by a great proportion when the subsidy is granted.
When supply is elastic, the subsidy can be effective
in raising supply of the good by a large
 proportion as there can be sufficient spare capacity
for firms to increase supply with.

Therefore, D is the answer.

The total revenue or expenditure for firms stays the
same when the good has a PED = -1. In this case, the
total revenue at $20 = Price x Quantity = $20 x 40,000
= $800,000.
57. C
The total revenue will stay the same at $5 with
160,000 units sold as Total Revenue = $5 X 160,000 =
$800,000.

Therefore, C is the answer.

58. B Concept.
Since the PED>1, the good will have an elastic
demand. The percentage change in quantity
59. D demanded will be greater than the percentage
change in price in this case and total revenue will go
up when price falls. D is the answer.
Students should note that the total revenue does not
60. D change at any price – characteristic of a good with
PED = -1.
Students can calculate percentage change in
quantity demanded for bus journeys = (1000 –
61. D 800)/800 x 100 = 25%.

XED = 25% / 10% = +2.5. Therefore, D is the answer.

PES = (% change in quantity supplied) / (% change in
price)

2.0 = [(X – 300)/300 x 100] / [(25 – 20)/20 x 100]

62. D 2.0 x 25 = [(X – 300)/300 x 100]
50 / 100 = X – 300/300
½ = X – 300/300
½ x 300 = X – 300
150 = X – 300
 X = 450

Therefore, D is the answer.

Supply curves with unitary PES always start at the
63. D origin. While supply curves, that have a PES>1 and
are elastic start from the Y-axis.
Students can find the change in quantity supplied by
plugging in the different prices.

Qs1 = 10 +10(1) = 20 units.

Qs2 = 10 + 10(2) = 30 units.
64. A
% change in quantity supplied = (30 – 20)/20 = ½ or
50%.
% change in price = (2 – 1)/1 = 100 %
PES = 50% / 100% = ½

Therefore, A is the answer.

The change in price if taking place in bus travel.
Students should keep in mind the formula of XED and
remember that the good for which quantity
demanded changed is Good A, and the good for
which price changes is Good B.

In this case, the price of bus travel is increasing so we

consider that to be good B.

65. C Therefore, we use the formula:

XED = (% change in quantity demanded of Good A)/

(% change in price of Good B)

0.16 = (% change in quantity demanded of Good A) /

1

% change in quantity demanded of Good A = 0.16.

 C is the answer.
66. A Concept.
The PED on the lower end of the demand curve is
more inelastic (PED<1). The value of the PED falls
from more than 1 to less than 1 in the movement from
67. B
Point X to Point Y.

Therefore, B is the answer.

PES = (% change in quantity supplied) / (% change in
price)

PES = 0.5, % change in price of furniture = 5%

68. D Therefore:

0.5 = (% change in price of furniture) / 5

% change in price of furniture = 2.5

D is the answer.