Elasticity is a fundamental concept in Microeconomics that measures the responsiveness of quantity demanded or supplied to changes in price, income, or related goods. This MCQs set focuses exclusively on different types of elasticity, their measurement methods, degrees, and practical interpretation. The questions are designed to strengthen conceptual clarity and analytical precision required for competitive and academic examinations such as FPSC, CSS, PMS, GAT, and SPSC.
Table of Contents
1. Price elasticity of demand measures:
A. Responsiveness of quantity demanded to price change
B. Change in demand due to income
C. Change in supply due to price
D. Responsiveness of price to demand
Explanation:
Price elasticity of demand shows how much quantity demanded responds to a change in price, holding other factors constant.
Price elasticity of demand shows how much quantity demanded responds to a change in price, holding other factors constant.
2. When price elasticity of demand is greater than one, demand is:
A. Elastic
B. Inelastic
C. Unit elastic
D. Perfectly inelastic
Explanation:
Elastic demand indicates a relatively larger percentage change in quantity demanded than price.
Elastic demand indicates a relatively larger percentage change in quantity demanded than price.
3. Demand is said to be perfectly inelastic when:
A. Quantity demanded does not change with price
B. Price and quantity change equally
C. Quantity demanded changes infinitely
D. Demand curve is horizontal
Explanation:
Perfectly inelastic demand implies zero responsiveness of quantity demanded to price changes.
Perfectly inelastic demand implies zero responsiveness of quantity demanded to price changes.
4. Which method measures elasticity at a single point on the demand curve?
A. Point elasticity method
B. Arc elasticity method
C. Total expenditure method
D. Income elasticity method
Explanation:
Point elasticity measures elasticity at a specific point using differential calculus.
Point elasticity measures elasticity at a specific point using differential calculus.
5. The arc elasticity method is used when:
A. Price change is large
B. Demand is perfectly elastic
C. Income remains constant
D. Supply curve is vertical
Explanation:
Arc elasticity measures average elasticity over a range of prices and quantities.
Arc elasticity measures average elasticity over a range of prices and quantities.
Figure: Price elasticity of demand showing elastic and inelastic demand curves.
6. If a fall in price increases total revenue, demand is:
A. Elastic
B. Inelastic
C. Perfectly inelastic
D. Unit elastic
Explanation:
In elastic demand, price and total revenue move in opposite directions.
In elastic demand, price and total revenue move in opposite directions.
7. Income elasticity of demand measures responsiveness to:
A. Change in consumer income
B. Change in price
C. Change in population
D. Change in tastes
Explanation:
Income elasticity shows how quantity demanded responds to income changes.
Income elasticity shows how quantity demanded responds to income changes.
8. For inferior goods, income elasticity of demand is:
A. Negative
B. Positive
C. Zero
D. Infinite
Explanation:
Demand for inferior goods falls as consumer income rises, giving negative income elasticity.
Demand for inferior goods falls as consumer income rises, giving negative income elasticity.
9. Cross elasticity of demand measures:
A. Response of demand to price of related goods
B. Response of supply to price
C. Response of income to price
D. Response of price to demand
Explanation:
Cross elasticity explains how demand for one good reacts to price changes of another good.
Cross elasticity explains how demand for one good reacts to price changes of another good.
10. Cross elasticity of demand for substitute goods is:
A. Positive
B. Negative
C. Zero
D. Infinite
Explanation:
When the price of one substitute rises, demand for the other increases.
When the price of one substitute rises, demand for the other increases.
11. When price elasticity of demand is equal to one, demand is:
A. Unit elastic
B. Perfectly elastic
C. Inelastic
D. Perfectly inelastic
Explanation:
Unit elastic demand means the percentage change in quantity demanded equals the percentage change in price.
Unit elastic demand means the percentage change in quantity demanded equals the percentage change in price.
12. Under unit elastic demand, total revenue will:
A. Remain unchanged when price changes
B. Increase with price rise
C. Decrease with price fall
D. Become zero
Explanation:
In unit elasticity, price and quantity changes offset each other, leaving total revenue constant.
In unit elasticity, price and quantity changes offset each other, leaving total revenue constant.
13. Which demand curve represents perfectly elastic demand?
A. Horizontal straight line
B. Vertical straight line
C. Downward sloping curve
D. Upward sloping curve
Explanation:
Perfectly elastic demand shows infinite responsiveness of quantity demanded to price.
Perfectly elastic demand shows infinite responsiveness of quantity demanded to price.
14. The formula for price elasticity of demand is:
A. Percentage change in quantity divided by percentage change in price
B. Change in price divided by change in quantity
C. Total revenue divided by price
D. Income divided by quantity
Explanation:
Elasticity compares proportional changes, not absolute changes, in price and quantity.
Elasticity compares proportional changes, not absolute changes, in price and quantity.
15. If demand is relatively inelastic, a rise in price will:
A. Increase total revenue
B. Decrease total revenue
C. Leave revenue unchanged
D. Reduce quantity to zero
Explanation:
With inelastic demand, quantity responds weakly, so higher price raises total revenue.
With inelastic demand, quantity responds weakly, so higher price raises total revenue.
16. Income elasticity of demand for necessities is usually:
A. Positive but less than one
B. Negative
C. Equal to one
D. Infinite
Explanation:
Demand for necessities increases with income, but at a slower proportional rate.
Demand for necessities increases with income, but at a slower proportional rate.
17. For luxury goods, income elasticity of demand is:
A. Greater than one
B. Less than one
C. Negative
D. Zero
Explanation:
Demand for luxury goods rises more than proportionately as income increases.
Demand for luxury goods rises more than proportionately as income increases.
18. Cross elasticity of demand for complementary goods is:
A. Negative
B. Positive
C. Zero
D. Infinite
Explanation:
A rise in price of one complementary good reduces demand for the other.
A rise in price of one complementary good reduces demand for the other.
19. Cross elasticity of demand between unrelated goods is:
A. Zero
B. Positive
C. Negative
D. Greater than one
Explanation:
Price changes of unrelated goods do not affect each other’s demand.
Price changes of unrelated goods do not affect each other’s demand.
20. Elasticity of supply measures responsiveness of:
A. Quantity supplied to price changes
B. Price to quantity supplied
C. Demand to income
D. Supply to income
Explanation:
Elasticity of supply indicates how producers adjust output in response to price changes.
Elasticity of supply indicates how producers adjust output in response to price changes.
21. If price elasticity of demand is greater than one, demand is classified as:
A. Elastic
B. Inelastic
C. Unit elastic
D. Perfectly inelastic
Explanation:
Elastic demand shows a proportionately larger change in quantity demanded than the change in price.
Elastic demand shows a proportionately larger change in quantity demanded than the change in price.
22. A vertical demand curve indicates:
A. Perfectly inelastic demand
B. Perfectly elastic demand
C. Unit elastic demand
D. Relatively elastic demand
Explanation:
In perfectly inelastic demand, quantity demanded remains constant regardless of price changes.
In perfectly inelastic demand, quantity demanded remains constant regardless of price changes.
23. Which factor tends to make demand more elastic?
A. Availability of close substitutes
B. Necessity of the good
C. Short time period
D. Habit-forming consumption
Explanation:
Availability of substitutes allows consumers to switch easily when prices change.
Availability of substitutes allows consumers to switch easily when prices change.
24. The elasticity of demand for necessities is generally:
A. Inelastic
B. Elastic
C. Perfectly elastic
D. Infinite
Explanation:
Consumers continue purchasing necessities even when prices change, making demand inelastic.
Consumers continue purchasing necessities even when prices change, making demand inelastic.
25. Which method measures elasticity at a single point on the demand curve?
A. Point elasticity method
B. Arc elasticity method
C. Total expenditure method
D. Income method
Explanation:
Point elasticity measures responsiveness at a specific point using a precise analytical approach.
Point elasticity measures responsiveness at a specific point using a precise analytical approach.
Figure: Different degrees of price elasticity of demand curves including perfectly elastic, unit elastic, and inelastic demand.
26. Arc elasticity of demand is used when:
A. Price change is relatively large
B. Price change is negligible
C. Demand is perfectly elastic
D. Income remains constant
Explanation:
Arc elasticity measures average responsiveness over a range of prices and quantities.
Arc elasticity measures average responsiveness over a range of prices and quantities.
27. Income elasticity of demand becomes negative for:
A. Inferior goods
B. Normal goods
C. Luxury goods
D. Substitute goods
Explanation:
Demand for inferior goods decreases as income rises, resulting in negative income elasticity.
Demand for inferior goods decreases as income rises, resulting in negative income elasticity.
28. Cross elasticity of demand is positive for:
A. Substitute goods
B. Complementary goods
C. Inferior goods
D. Unrelated goods
Explanation:
A price rise in one substitute increases demand for the other substitute.
A price rise in one substitute increases demand for the other substitute.
29. Which elasticity concept helps firms in pricing decisions?
A. Price elasticity of demand
B. Income elasticity of demand
C. Cross elasticity of demand
D. Elasticity of supply
Explanation:
Firms rely on price elasticity to predict revenue outcomes of price changes.
Firms rely on price elasticity to predict revenue outcomes of price changes.
30. Elasticity of supply is high when:
A. Production can be easily adjusted
B. Inputs are fixed
C. Time period is very short
D. Goods are perishable
Explanation:
Flexible production conditions allow suppliers to respond strongly to price changes.
Flexible production conditions allow suppliers to respond strongly to price changes.
31. If percentage change in quantity demanded equals percentage change in price, demand is:
A. Unit elastic
B. Perfectly elastic
C. Relatively elastic
D. Perfectly inelastic
Explanation:
Unit elasticity occurs when quantity demanded changes in the same proportion as price.
Unit elasticity occurs when quantity demanded changes in the same proportion as price.
32. Perfectly elastic demand is represented by:
A. Horizontal demand curve
B. Vertical demand curve
C. Downward sloping curve
D. Upward sloping curve
Explanation:
Under perfectly elastic demand, consumers buy any quantity at a given price.
Under perfectly elastic demand, consumers buy any quantity at a given price.
33. Which method classifies elasticity based on total revenue changes?
A. Total expenditure method
B. Point elasticity method
C. Arc elasticity method
D. Income method
Explanation:
The total expenditure method evaluates elasticity by observing changes in total revenue.
The total expenditure method evaluates elasticity by observing changes in total revenue.
34. Demand is elastic when a fall in price causes total revenue to:
A. Increase
B. Decrease
C. Remain constant
D. Become zero
Explanation:
With elastic demand, quantity response is strong enough to raise total revenue.
With elastic demand, quantity response is strong enough to raise total revenue.
35. Income elasticity greater than one indicates:
A. Luxury goods
B. Inferior goods
C. Necessities
D. Complementary goods
Explanation:
Luxury goods show a more than proportionate increase in demand as income rises.
Luxury goods show a more than proportionate increase in demand as income rises.
36. Cross elasticity of demand is zero for:
A. Unrelated goods
B. Substitute goods
C. Complementary goods
D. Inferior goods
Explanation:
Price changes of unrelated goods do not affect demand for each other.
Price changes of unrelated goods do not affect demand for each other.
37. Elasticity of supply is perfectly inelastic when:
A. Quantity supplied is fixed
B. Time period is long
C. Production is flexible
D. Inputs are variable
Explanation:
Perfectly inelastic supply implies no change in quantity supplied regardless of price.
Perfectly inelastic supply implies no change in quantity supplied regardless of price.
38. Which time period shows relatively elastic supply?
A. Long run
B. Market period
C. Short run
D. Very short run
Explanation:
In the long run, firms can adjust all factors of production.
In the long run, firms can adjust all factors of production.
39. Which elasticity concept measures responsiveness of demand to income changes?
A. Income elasticity of demand
B. Price elasticity of demand
C. Cross elasticity of demand
D. Elasticity of supply
Explanation:
Income elasticity explains how demand responds to changes in consumer income.
Income elasticity explains how demand responds to changes in consumer income.
40. Elasticity of demand is zero when demand is:
A. Perfectly inelastic
B. Perfectly elastic
C. Unit elastic
D. Relatively elastic
Explanation:
With perfectly inelastic demand, quantity demanded does not respond to price changes.
With perfectly inelastic demand, quantity demanded does not respond to price changes.
41. Price elasticity of demand is equal to one when:
A. Total expenditure remains unchanged
B. Total expenditure increases
C. Total expenditure decreases
D. Quantity demanded becomes zero
Explanation:
Under unit elastic demand, an increase or decrease in price does not change total expenditure.
Under unit elastic demand, an increase or decrease in price does not change total expenditure.
42. Which type of demand shows zero responsiveness to price change?
A. Perfectly inelastic demand
B. Perfectly elastic demand
C. Unit elastic demand
D. Relatively elastic demand
Explanation:
In perfectly inelastic demand, quantity demanded remains constant regardless of price.
In perfectly inelastic demand, quantity demanded remains constant regardless of price.
43. Cross elasticity of demand is negative in case of:
A. Complementary goods
B. Substitute goods
C. Independent goods
D. Inferior goods
Explanation:
A rise in the price of one complementary good reduces demand for the other.
A rise in the price of one complementary good reduces demand for the other.
44. Income elasticity of demand is zero for:
A. Necessities
B. Luxury goods
C. Inferior goods
D. Substitute goods
Explanation:
For necessities, demand remains largely unchanged despite income changes.
For necessities, demand remains largely unchanged despite income changes.
45. Elasticity of supply is measured as:
A. Percentage change in quantity supplied divided by percentage change in price
B. Percentage change in price divided by percentage change in quantity
C. Change in total cost divided by price
D. Change in income divided by output
Explanation:
Elasticity of supply measures how responsive quantity supplied is to price changes.
Elasticity of supply measures how responsive quantity supplied is to price changes.
Figure: Different degrees of elasticity of supply.
46. Supply tends to be more elastic when:
A. Time period is long
B. Inputs are fixed
C. Goods are perishable
D. Production capacity is limited
Explanation:
In the long run, producers can adjust all factors of production, increasing responsiveness.
In the long run, producers can adjust all factors of production, increasing responsiveness.
47. Which elasticity concept helps measure market competitiveness?
A. Cross elasticity of demand
B. Income elasticity of demand
C. Price elasticity of supply
D. Point elasticity of demand
Explanation:
Cross elasticity indicates the degree of competition between related goods.
Cross elasticity indicates the degree of competition between related goods.
48. When price elasticity of demand is less than one, demand is:
A. Inelastic
B. Elastic
C. Unit elastic
D. Perfectly elastic
Explanation:
In inelastic demand, quantity demanded responds weakly to price changes.
In inelastic demand, quantity demanded responds weakly to price changes.
49. Which good shows perfectly elastic demand?
A. Identical products in perfect competition
B. Essential medicines
C. Agricultural products
D. Luxury cars
Explanation:
In perfect competition, consumers can switch completely at the given market price.
In perfect competition, consumers can switch completely at the given market price.
50. Elasticity analysis is most useful for:
A. Pricing and tax policy decisions
B. Measuring national income
C. Calculating production costs
D. Determining accounting profit
Explanation:
Elasticity helps policymakers and firms assess the impact of price and tax changes.
Elasticity helps policymakers and firms assess the impact of price and tax changes.
Related MCQs:
Demand and Supply MCQs (Microeconomics)
Elasticity of Demand and Supply MCQs
Economics MCQs
External Reference:
Factors of Production – Wikipedia
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Last Updated: 9 February 2026
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