Elasticity Practice Questions

8 representative multiple-choice questions on elasticity for AP Microeconomics, drawn from our 39-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.

Prefer to read? The same questions, with answers

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. The cross-price elasticity of demand between goods A and B is -1.8. This means A and B are:

   • A. Substitutes
   • B. Complements
   • C. Normal goods
   • D. Inferior goods
   Show answer

   Correct answer: B. Complements

   Negative cross-price elasticity means that when B's price rises, demand for A falls. They move together, like printers and ink. That's the signature of complements. Substitutes require a positive coefficient, because a price hike on one sends buyers toward the other. Options C and D involve income elasticity, which is a completely different measure. Normal and inferior classify goods by how they respond to income changes, not to another good's price.

3. 3. 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.

4. 4. Which of the following combinations of characteristics would make demand for a good MOST elastic?

   • A. The good is a necessity, has few substitutes, and takes a small share of the consumer's budget
   • B. The good is a luxury, has many close substitutes, and the consumer has a long time horizon to adjust
   • C. The good is a necessity, has many substitutes, and the consumer faces a short time horizon
   • D. The good is a luxury, has few substitutes, and takes a small share of the consumer's budget
   Show answer

   Correct answer: B. The good is a luxury, has many close substitutes, and the consumer has a long time horizon to adjust

   All three determinants in option B point toward maximum elasticity. Luxuries are easy to forgo entirely. Many close substitutes give consumers real alternatives when price rises. A long time horizon lets buyers find workarounds and change their habits. Option A stacks three factors that push toward inelasticity: necessity status, few substitutes, small budget share. Option C sends mixed signals: substitutes push toward elasticity, but necessity status and a short time horizon push the other way. Option D also mixes signals: luxury status increases elasticity, but few substitutes and small budget share both dampen responsiveness.

5. 5. At a price of $40, a firm sells 260 units. What is its total revenue?

   • A. $10,400
   • B. $104,000
   • C. $300
   • D. $6,500
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   Correct answer: A. $10,400

   Total revenue is price times quantity: 40 x 260 = $10,400. Total revenue is the whole rectangle under the price line out to the quantity sold, which is why it is the quantity that connects elasticity to a firm's earnings.

6. 6. Which situation would make the supply of a good MOST elastic?

   • A. The good takes three years to grow and cannot be stored
   • B. Producers hold large inventories and have spare factory capacity
   • C. The industry is operating at full capacity with no idle plant
   • D. The only input is a fixed quantity of land
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   Correct answer: B. Producers hold large inventories and have spare factory capacity

   Supply is elastic when producers can change output quickly and cheaply. Inventories and spare capacity are exactly that: a price rise can be met at once from stock or by running idle machines. Long growing periods, full capacity, and fixed inputs all make output hard to change, so supply is inelastic. Time is the master determinant on the supply side: given long enough, almost all supply becomes more elastic.

7. 7. A per-unit tax is placed on a good whose demand is highly inelastic and whose supply is highly elastic. Who bears more of the tax burden?

   • A. Producers, because elastic supply means they absorb price changes easily
   • B. Producers, because they must remit the tax to the government
   • C. Consumers, because they have fewer alternatives than producers
   • D. The burden is split evenly regardless of elasticity
   Show answer

   Correct answer: C. Consumers, because they have fewer alternatives than producers

   Tax incidence falls on whichever side is less able to walk away, which is the side with the more inelastic curve. Inelastic buyers keep buying as the price rises, so most of the tax is passed to them. Who physically remits the tax to the government is irrelevant to who bears it, which is the distinction this question exists to test.

8. 8. Supply is perfectly inelastic in the very short run for a good such as seats at tonight's concert. This means the supply curve is:

   • A. Upward sloping with an elasticity of 1
   • B. Downward sloping, because scarcity raises value
   • C. Horizontal, and the seller will supply any quantity at the going price
   • D. Vertical, and quantity supplied cannot change no matter the price
   Show answer

   Correct answer: D. Vertical, and quantity supplied cannot change no matter the price

   Once the venue is built, the number of seats is fixed for tonight, so quantity supplied cannot respond to price at all: elasticity is zero and the curve is vertical. This is the clearest case of time driving elasticity of supply. Given years rather than hours, more venues can be built and supply becomes elastic.