Elasticity Practice Questions

8 representative multiple-choice questions on elasticity for AP Microeconomics, drawn from our 15-question bank for this module. Work through each one, then open “Show answer” for the correct choice and an explanation. For scored, timed practice across the full bank, take a full practice test.

1. 1. If a 10% increase in the price of a good leads to a 20% decrease in quantity demanded, the price elasticity of demand is:

   • A. |Ed| = 0.5
   • B. |Ed| = 1.0
   • C. |Ed| = 2.0
   • D. |Ed| = 10
   Show answer

   Correct answer: C. |Ed| = 2.0

   |Ed| = |(-20%) / (10%)| = 2.0. Demand is elastic, meaning quantity responded more than proportionally to the price change. Option A flips the fraction, dividing price change by quantity change instead of the other way around. Option B would require the percentage changes to be equal. Option D has no connection to the given numbers.

2. 2. A firm faces inelastic demand for its product. If it raises the price, what happens to total revenue?

   • A. Total revenue decreases
   • B. Total revenue increases
   • C. Total revenue stays the same
   • D. The effect depends on marginal cost
   Show answer

   Correct answer: B. Total revenue increases

   With inelastic demand, quantity barely falls when price rises. The higher per-unit price more than compensates for the small quantity loss, so TR goes up. Option A describes what happens when demand is elastic and customers leave in large numbers. Option C requires unit elasticity, |Ed| = 1 exactly. Option D is irrelevant because the total revenue test depends entirely on elasticity, not on marginal cost or any cost measure.

3. 3. On a linear demand curve, where does unit elasticity occur?

   • A. At the top of the curve where price is highest
   • B. At the bottom of the curve where price is lowest
   • C. At the midpoint of the curve
   • D. At every point along the curve
   Show answer

   Correct answer: C. At the midpoint of the curve

   The slope stays constant on a linear demand curve, but elasticity does not, because it depends on the P/Q ratio, which shifts at every point. At the midpoint, that ratio yields |Ed| = 1. The top of the curve has high P and low Q, giving |Ed| > 1 (elastic). The bottom has low P and high Q, giving |Ed| < 1 (inelastic). Option D is a common mistake that confuses constant slope with constant elasticity, and those are two different things.

4. 4. Using the midpoint method, if quantity demanded changes from 40 to 60 when price falls from $12 to $8, what is the price elasticity of demand?

   • A. |Ed| = 0.5
   • B. |Ed| = 1.0
   • C. |Ed| = 1.25
   • D. |Ed| = 2.0
   Show answer

   Correct answer: B. |Ed| = 1.0

   Midpoint %ΔQ = (60 − 40) / 50 = 40%. Midpoint %ΔP = (8 − 12) / 10 = −40%. |Ed| = |40% / −40%| = 1.0, so demand is unit elastic. Option A likely comes from using simple percentage changes with the starting value as the base instead of the midpoint average. Option C probably results from a denominator error in one of the calculations. Option D would require quantity to change by double the percentage of price.

5. 5. A perfectly inelastic demand curve is:

   • A. Horizontal
   • B. Vertical
   • C. Downward-sloping with a slope of -1
   • D. Upward-sloping
   Show answer

   Correct answer: B. Vertical

   Quantity never changes regardless of what happens to price. That's a vertical line on the graph, with price moving along the y-axis while quantity stays fixed on the x-axis. |Ed| = 0. A horizontal curve is perfectly elastic, which is the exact opposite case. A slope of -1 just describes one particular downward-sloping line that still has varying elasticity along it. An upward-sloping curve describes supply.

6. 6. A firm currently sells 1,000 units at $20 each, earning total revenue of $20,000. If the firm raises its price to $22 and total revenue increases to $20,900, what can we conclude about demand in this price range?

   • A. Demand is elastic because price increased
   • B. Demand is inelastic because a price increase raised total revenue
   • C. Demand is unit elastic because revenue barely changed
   • D. Demand elasticity cannot be determined from revenue data alone
   Show answer

   Correct answer: B. Demand is inelastic because a price increase raised total revenue

   Price went up and total revenue went up, so the total revenue test tells us demand is inelastic. Quantity fell, but not by enough proportionally to offset the higher price. Option A gets the logic backwards: elastic demand would cause revenue to *fall* when price rises. Option C is wrong because unit elasticity means revenue stays exactly the same, and $20,900 is not $20,000. Option D is incorrect because the total revenue test exists specifically to determine elasticity from revenue data.

7. 7. A household's income rises from $50,000 to $65,000, and their annual spending on generic store-brand groceries falls from $3,000 to $2,400. The income elasticity of demand for generic groceries is approximately:

   • A. +0.75, a normal necessity
   • B. −0.75, an inferior good
   • C. +1.33, a normal luxury
   • D. −1.33, an inferior good
   Show answer

   Correct answer: B. −0.75, an inferior good

   Midpoint %ΔQ = (2400 − 3000) / 2700 = −22.2%. Midpoint %ΔI = (65000 − 50000) / 57500 = 26.1%. Income elasticity = −22.2% / 26.1% = −0.85, which is closest to −0.75. The negative sign means demand falls when income rises, which means it's an inferior good. Option A has the wrong sign; positive income elasticity would mean buying *more* as income rises. Option C is wrong on both sign and magnitude. Option D has the right sign but overstates the magnitude, probably from inverting the formula or using a different base for the percentage calculation.

8. 8. A government imposes a per-unit tax on a good. If demand is relatively inelastic and supply is relatively elastic, the burden of the tax falls:

   • A. Mostly on producers because they have elastic supply
   • B. Mostly on consumers because they have inelastic demand
   • C. Equally on both buyers and sellers regardless of elasticity
   • D. Entirely on producers because they are legally responsible for remitting the tax
   Show answer

   Correct answer: B. Mostly on consumers because they have inelastic demand

   Tax incidence depends on relative elasticity, not on who writes the check to the government. The more inelastic side bears the larger share because those participants can't easily adjust their behavior. With inelastic demand and elastic supply, consumers absorb most of the tax through higher prices, while producers adjust their quantity relatively easily and escape most of the burden. Equal incidence only occurs when both sides have equal elasticity. Option D confuses legal incidence (who remits the tax to the government) with economic incidence (who actually bears the cost), and those are two very different things.