Senior Secondary (HKDSE) · Economics

Price elasticity of demand and supply: Practice Questions

5 multiple-choice questions marked as you go, and 3 written questions with worked solutions. All on Price elasticity of demand and supply.

8 questions16 marksFree, no account

Question 1

1 mark

Which of the following factors would lead to a more price-inelastic demand for a good?

Question 2

1 mark

A restaurant owner increases the price of the signature steak by \(20\%\). Despite the price hike, the total revenue generated from steak sales also increases by exactly \(20\%\). What is the price elasticity of demand for the steak?

Question 3

1 mark

The government plans to impose a specific tax on either Good A or Good B to maximize tax revenue. For both goods, the demand curves are linear and downward sloping, and the supply curves are linear and upward sloping. Economic analysis reveals the following:
(i) The price elasticity of demand for Good A is estimated to be \( -0.4 \).
(ii) The price elasticity of supply for Good A is estimated to be \( 1.2 \).
(iii) The price elasticity of demand for Good B is estimated to be \( -1.8 \).
(iv) The price elasticity of supply for Good B is estimated to be \( 0.6 \).
Based on this information, which good should the government tax to maximize its tax revenue, and why?

Question 4

1 mark

If the price elasticity of demand for a brand of luxury handbags is 2.5, what will happen to the total revenue if the firm decides to increase the price of the handbags by 10%?

Question 5

1 mark

Suppose the price elasticity of demand for Good X is 0.4. If the government provides a subsidy to the producers of Good X, resulting in a \(10\%\) decrease in its market price, what will be the effect on the total expenditure of consumers on Good X?

Question 6

2 marks

In the context of Price elasticity of demand and supply, how does having highly mobile factors of production affect the price elasticity of supply (PES) for a good?

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Question 7

4 marks

Consider a local bakery that sells two products: highly specialized artisanal sourdough bread and essential all-purpose flour. Explain which of these two products is likely to have a more price elastic demand and how this difference would influence the bakery's pricing strategy for each product if it aims to maximize total revenue.

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Question 8

5 marks

A firm faces a demand curve where the price elasticity of demand is \( 0.4 \) at the current price level. Explain whether the firm should increase or decrease its price to increase its total revenue, with reference to the percentage changes in price and quantity demanded.

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