Understanding Supply and Demand Concepts

If the price of a complement increases, all else equal,
A)
quantity demanded will increase.
B)
quantity supplied will increase.
C)
demand will increase.
D)
demand will decrease.
E)
supply will decrease.
2
Which of the following would lead to an INCREASE in the demand for golf balls?
A)
An decrease in the price of golf balls.
B)
An increase in the price of golf clubs.
C)
A decrease in the cost of producing golf balls.
D)
An increase in average household income when golf

balls are a normal good.
E)
none of the above
3
If input prices increase, all else equal,
A)
quantity supplied will decrease.
B)
supply will increase.
C)
D)
4
Which of the following would decrease the supply of wheat?
A)
A decrease in the price of pesticides.
B)
An increase in the demand for wheat.
C)
A rise in the price of wheat.
D)
An increase in the price of corn.
E)
none of the above
5
When Sonoma Vineyards increases the price of its
Chardonnay from $15 per bottle to $20 per bottle, the result
is a decrease in
A)
the quantity of this wine demanded.
B)
the quantity of this wine supplied.
C)
the demand for this wine.
D)
the supply of this wine.
6
Which of the following will cause a change in quantity
supplied?
A)
Technological change.
B)
A change in input prices.
C)
A change in the market price of the good.
D)
A change in the number of firms in the market.
E)
all of the above.
7
In which of the following cases will the effect on equilibrium
output be indeterminate (i.e., depend on the magnitudes of
the shifts in supply and demand)?
A)
Demand decreases and supply decreases.
B)
Demand remains constant and supply increases.
C)
Demand decreases and supply increases.
D)
Demand increases and supply increases.
E)
none of the above.
Use the following demand and supply functions to answer the next three questions.
Demand: Qd = 600 - 30P
Supply: Qs = -300 + 120P
8
Equilibrium price and output are
A)
B)
C)
D)
P = $2 and Q = 540.
P = $10 and Q = 300.
P = $6 and Q = 420.
P = $3.33 and Q = 500.
E)
none of the above
9
If the price is currently $8, there is a
A)
B)
C)
D)
E)
surplus of 360 units.
shortage of 360 units.
none of the above
10
A)
B)
C)
D)

none of the above
E)
Use the following general linear demand relation to answer the next four questions:
Qd = 100 - 5P + 0.004M - 5PR
where P is the price of good X, M is income and PR is the price of a related good, R.
1
1
What is the demand function when M = $40,000 and PR = $20?
A)
B)
C)
D)
E)
1
2
Qd = 360 - 5P
Qd = 160 - 5P
Qd = 260 - 5P
Qd = 160 - 100P
none of the above
From the demand function it is apparent that related good R is
A)
B)
C)
a complement for good X.
a substitute for good X.
a normal good.
D)
1
3
From the demand function it is apparent that good X is
A)
B)
C)
D)
1
4
an inferior good.
a complement good.
a substitute good.
a normal good.
an inferior good.
If M = $40,000 and PR= $20 and the supply function is Qs = 85 + 10P, market price and
output are, respectively,
A)
B)
C)
D)
E)
P = $15 and Q = 85.
P = $5 and Q = 185.
P = $10 and Q = 185.
P = $5 and Q = 135.
P = $15 and Q = 235.
1
5
If a supply curve goes through the point P = $15 and Q s = 400, then
A)
B)
C)
D)
E)
$15 is the highest price that will induce firms to supply 400 units.
$15 is the lowest price that will induce firms to supply 400 units.
at a price higher than $15 there will be a surplus.
at a price lower than $15 there will be a shortage.
both a and d
Use the following general linear supply function to answer the next two questions:
Qs = 60 + 8P - 4PI + 20F
where Qs is the quantity supplied of the good, P is the price of the good, PI is the price of an input,
and F is the number of firms producing the good.
1
6
When Pi = $20 and F = 60, the INVERSE supply function is
A)
B)
C)
D)
P = 132.5 + 0.125Qs.
P = -147.5 + 0.125Qs.
P = 147.5 + 8Qs.
P = 260 + 8Qs
1
7
Again suppose Pi = $20 and F = 60, what is the lowest price that will induce firms to supply
1,500 units of output?
A)
B)
C)
D)
1
8
$335
$40
$320
$60
Consumer surplus
A)
is always positive.
for a particular unit of consumption is computed by taking the difference between

B)quantity demand and quantity supplied.
for all units consumed is the area below demand and below market price over all the
C)units consumed.
added to producer surplus provides a measure of the net gain to society from the
D)production and consumption of the good.
E)
all of the above
Use the following figure showing demand and supply in the market to answer the next two questions:
A.
B.
C.
D.
Which of the following is not a component of demand?

Desire
Surplus
Ability
Willingness
2. The law of demand states that there is what type of relationship between price and quantity demanded?
The demand curve slopes in which direction?
3.
Down
A.
B.
4.
A.
B.
C.
D.
Up
When each additional unit of a product gives you less utility it is know as what?
Marginal analysis
Downward demand
Diminishing marginal utility
Decreasing desire
The
law of supply states there is what type of relationship between price and quantity supplied?
5.
The supply curve always slopes in what direction?
6.
Down
A.
B.
7.
8.
Up
The ideal price level is known as what?
A surplus will occur for a product when the price is
9.
Too high.
Too low.
When there is a shortage what should be done?
10.
Increase supply
Decrease price
Decrease price
Increase demand
When graphing supply and demand, price is always on which axis?
A.
B.
A.
B.
C.
D.
A.
Horizontal
B. Vertical
If the demand curve for good X is downward-sloping, an increase in the price will result in
A.
An increase in the demand for good X.
B.
A decrease in the demand for good X.
C. No change in the quantity demanded for good X.
D.
A larger quantity demanded for good X.
E.
A smaller quantity demanded for good X.
The law of demand states that the quantity demanded of a good changes, other things being equal, when
A.
The price of the good changes.
B.
Consumer income changes.
C.
The prices of other goods change.
D. A change occurs in the quantities of other goods purchased
Which of the following is the result of a decrease in the price tea, other things being equal?
A.
B.
C.
D.
A leftward shift in the demand curve for tea.

A downward movement along the demand curve for tea.
A rightward shift in the demand curve for tea.
An upward movement along the demand curve for tea.
Which of the following will cause a movement along the demand curve for X?
A.
A change in the price of a close substitute.
B.
A change in the price of good X.
C. A change in consumer tastes and preferences for good X.
D.
A change in consumer income.
A change in the price of good x.

movement along a given demand curve always occurs when the price changes, if
anything other than price changes, then the whole curve will shift.
A.
B.
C.
D.
Assuming that coffee and tea are substitutes, a decrease in the price of coffee, other things being equal, results in a
(an)
Downward movement along the demand curve for tea.
Downward movement along the demand curve for tea.
Upward movement along the demand curve for tea.
Rightward shift in the demand curve for tea.
An increase in consumer income, other things being equal, will

A. Shift the supply curve for a normal good to the right.
B. Cause an upward movement along the demand curve for an inferior good.
C. Shift the demand curve for an inferior good to the left.
D. Cause a downward movement along the supply curve for a normal good.
Shift the demand curve for an inferior good to the left.

inferior goods are goods that people will buy less of at possible prices as their income
increases.
A.
B.
C.
D.
E.
Yesterday, seller A supplied 400 units of a good X at $10 per unit. Today, seller A supplies the same quantity of units
at $5 per unit. Based on this evidence, seller A has experienced a (an)
Decrease in supply.
Increase in supply.
Increase in the quantity supplied.
Decrease in the quantity supplied.
Increase in demand.
the only way sell a could supply 400 units of good x at $10 yesterday and $5 today is
for the supply curve to shift rightward.
Multiple Choice Quiz

(See related pages)
Results Reporter
Out of 20 questions, you answered 5 correctly with a final grade of 25%
5 correct
(25%)
12 incorrect
(60%)
3
unanswered
(15%)
Your Results:
The correct answer for each question is indicated by a
1 CORRECT
If the price of a complement increases, all else equal,
quantity demanded will increase.
A)
quantity supplied will increase.

B)
demand will increase.

C)
D)
E)
2 CORRECT
Which of the following would lead to an INCREASE in the
demand for golf balls?
An decrease in the price of golf balls.
A)
An increase in the price of golf clubs.

B)
A decrease in the cost of producing golf balls.

C)
An increase in average household income when golf

D)balls are a normal good.
E)
none of the above
3 CORRECT
If input prices increase, all else equal,
quantity supplied will decrease.
A)
supply will increase.

B)

C)

D)
4 CORRECT
Which of the following would decrease the supply of
wheat?
A decrease in the price of pesticides.
A)
An increase in the demand for wheat.

B)
A rise in the price of wheat.

C)
An increase in the price of corn.

D)
E)
5
INCORRECT
none of the above
When Sonoma Vineyards increases the price of its

Chardonnay from $15 per bottle to $20 per bottle, the
result is a decrease in
the quantity of this wine demanded.
A)
the quantity of this wine supplied.

B)
the demand for this wine.

C)
the supply of this wine.

D)
INCORRECT
Which of the following will cause a change in quantity

supplied?
Technological change.
A)
A change in input prices.

B)
A change in the market price of the good.

C)
A change in the number of firms in the market.

D)
E)
7
INCORRECT
all of the above.
In which of the following cases will the effect on

equilibrium output be indeterminate (i.e., depend on the
magnitudes of the shifts in supply and demand)?
Demand decreases and supply decreases.
A)
Demand remains constant and supply increases.

B)
Demand decreases and supply increases.

C)
Demand increases and supply increases.

D)
E)
none of the above.
Use the following demand and supply functions to answer the next three
questions.
Demand: Qd = 600 - 30P
Supply: Qs = -300 + 120P
8 CORRECT
Equilibrium price and output are
P = $2 and Q = 540.
A)
P = $10 and Q = 300.

B)
P = $6 and Q = 420.
C)
P = $3.33 and Q = 500.

D)
E)
9
INCORRECT
none of the above

A)

B)

C)

D)
none of the above
E)
10
INCORRECT

A)

B)

C)

D)
E)
none of the above
Use the following general linear demand relation to answer the next four
questions:
Qd = 100 - 5P + 0.004M - 5PR
where P is the price of good X, M is income and PR is the price of a related
good, R.
11
INCORRECT
What is the demand function when M = $40,000

and PR = $20?
Qd = 360 - 5P
A)
Qd = 160 - 5P
B)
Qd = 260 - 5P
C)
Qd = 160 - 100P
D)
E)
12
INCORRECT
none of the above
From the demand function it is apparent that related

good R is
a complement for good X.
A)
a substitute for good X.

B)
a normal good.
C)
an inferior good.
D)
13
INCORRECT
From the demand function it is apparent that good X is

a complement good.
A)
a substitute good.
B)
a normal good.
C)
an inferior good.
D)
14
INCORRECT
If M = $40,000 and PR= $20 and the supply function

is Qs = 85 + 10P, market price and output are,
respectively,
P = $15 and Q = 85.
A)
P = $5 and Q = 185.
B)
P = $10 and Q = 185.

C)
P = $5 and Q = 135.
D)
E)
15
UNANSWERED
P = $15 and Q = 235.
If a supply curve goes through the point P = $15 and

Qs = 400, then
$15 is the highest price that will induce firms to
A)supply 400 units.
$15 is the lowest price that will induce firms to

B)supply 400 units.
at a price higher than $15 there will be a surplus.

C)
at a price lower than $15 there will be a shortage.

D)
E)
both a and d
Use the following general linear supply function to answer the next two
questions:
Qs = 60 + 8P - 4PI + 20F
where Qs is the quantity supplied of the good, P is the price of the good, PI is the
price of an input, and F is the number of firms producing the good.
16
UNANSWERED
When Pi = $20 and F = 60, the INVERSE supply

function is
P = 132.5 + 0.125Qs.
A)
P = -147.5 + 0.125Qs.
B)
P = 147.5 + 8Qs.
C)
P = 260 + 8Qs
D)
17
UNANSWERED
Again suppose Pi = $20 and F = 60, what is the lowest

price that will induce firms to supply 1,500 units of
output?
$335
A)
$40
B)
$320
C)
$60
D)
18
INCORRECT
Consumer surplus
is always positive.
A)
for a particular unit of consumption is computed by
taking the difference between quantity demand
B)and quantity supplied.
for all units consumed is the area below demand
and below market price over all the units
C)consumed.
added to producer surplus provides a measure of
the net gain to society from the production and
D)consumption of the good.
E)
all of the above
Use the following figure showing demand and supply in the market to answer the
next two questions:
19
INCORRECT
A ceiling price of $15 would cause

a surplus of 800.
A)
a shortage of 800.
B)
a surplus of 600.
C)
a shortage of 600.
D)
20
INCORRECT
A floor price of $30 would cause

a surplus of 150.
A)
a shortage of 150.
B)
a surplus of 400.
C)
a shortage of 400.
D)
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Normally a demand curve will have the shape:
A.
Horizontal
B.
Vertical
C.
Downward sloping
D.
Upward sloping
Answer & Explanation
Answer: Option C
Explanation:
View Answer Workspace Report Discuss in Forum
2.
Law of demand shows relation between:

A.
Income and price of commodity
B.
Price and quantity of a commodity
C.
Income and quantity demand
D.
Quantity demanded and quantity

supplied
Answer: Option B
Explanation:
3.
This is an assumption of law of demand:

A.
Price of the commodity should not

change
B.
Quantity should not change
C.
Supply should not change
D.
Income of consumer should not change
Answer: Option D
Explanation:
4.
If quantity demanded is completely unresponsive to changes in price, demand is:

A.
Inelastic
B.
Unit elastic
C.
Elastic
D.
Perfectly inelastic
Answer: Option D
Explanation:
5.
Other things equal, if a good has more substitutes, its price elasticity of demand is:
A.
Larger
B.
Smaller
C.
Zero
D.
Unity
Answer: Option A
Explanation:
6.
Price of a product falls by 10% and its demand rises by 30%. The elasticity of demand is:
A.
10%
B.
30%
C.
D.
1?3
Answer: Option C
Explanation:
7.
If elasticity of demand is very low it shows that the commodity is:

A.
A necessity
B.
A luxury
C.
Has little importance in total budget
D.
(a) and (c) above
Answer: Option A
Explanation:
8.
The following are causes of shift in demand EXCEPT the one:
A.
Change in income
B.
Change in price
C.
Change in fashion
D.
Change in prices of substitutes
Answer: Option B
Explanation:
9.
When demand is perfectly inelastic, an increase in price will result in:

A.
A decrease in total revenue
B.
An increase in total revenue
C.
No change in total revenue
D.
A decrease in quantity demanded
Answer: Option B
Explanation:
10. If demand is unitary elastic, a 25% increases in price will result in:
A.
25% change in total revenue
B.
No change in quantity demanded
C.
1% decrease in quantity demanded
D.
25% decrease in quantity demanded
Answer: Option D
Explanation:
11.
Irrespective of price, Sofia always spends Rs. 100 a week on ice cream, we
conclude that:
A.
Elasticity of demand is 0 B.
Elasticity of demand is 1
C.
Elasticity of demand is infinite
D.

Answer: Option B
The law of demand has been violated
Explanation:

12.
When cross elasticity of demand is a large positive number, one can conclude
that:
A.
The good is normal B.
The good is inferior
C.
The good is a substitute
D.
The good is a complement

Answer: Option C
Explanation:

13.
If demand is inelastic, a change in the price:
A.
Will change the quantity in same direction
in same direction
B.
Will change total revenue
C.
Will change total revenue in the opposite direction D.
quantity
Will not change

Answer: Option B
Explanation:

14.
Which one is the assumption of law of demand?
A.
Price of the commodity should not change
should not change
B.
Quantity demanded
C.
Prices of substitutes should not change
linear
D.
Demand curve must be

Answer: Option C
Explanation:

15.
Which of the following is a demand function?
A.
Q + 4P = 20 B.
Q = 35 + 3P
C.
Q - 2P - 15 = 0
D.
5P - Q = 4

Answer: Option A
Explanation:

16.
Zubair has a special taste for college canteen is hotdogs. The owner of the
canteen doubles the prices of hotdogs. Zubair did not respond to the increase in
prices and kept on demanding the same quantity of hotdogs. His demand for
hotdogs is:
A.
Perfectly elastic
C.
ElasticD.
Less elastic

Answer: Option B
Explanation:
B.
Perfectly inelastic

17.
Price and demand are positively correlated in case of:
A.
Necessities B.
Comforts
C.
Giffen goods D.
Luxuries

Answer: Option C
Explanation:

18.
The elasticity of demand of durable goods is:
A.
Less than unity
B.
Greater than unity
C.
Equal to unity
D.
Zero

Answer: Option B
Explanation:

19.
The elasticity of demand of durable goods is:
A.
More elastic B.
Less elastic
C.
Zero elastic D.
Infinite elastic

Answer: Option A
Explanation:

20.
Mr. Raees Ahmad bought 50 litres of petrol when his monthly income was Rs.
25,000. Now his monthly income has risen to Rs. 50,000 and he purchases 100 litre
of petrol. His income elasticity of demand for petrol is:
A.
B.
100%
C.
Less than one
D.
More than one

Answer: Option A
Explanation:
21. When price elasticity of demand for normal goods is calculated, the value is always:
A.
Positive
B.
Negative
C.
Constant
D.
Greater than one
Answer: Option B
Explanation:
22. Income elasticity of demand for normal good is always:
A.
B.
More than one
C.
Negative
D.
Positive
Answer: Option D
Explanation:
23. Demand is a function of:
A.
Price
B.
Quantity
C.
Supply
D.
None of these
Answer: Option A
Explanation:
24. If price and total revenue move in the same direction, then demand is:
A.
Inelastic
B.
Elastic
C.
Unrelated
D.
Perfectly elastic
Answer: Option A
Explanation:
25. What does price elasticity of demand measure?
A.
Change in price caused by changes in

demand
B.
The rate of change of sales
C.
The responsiveness of demand to price

changes
D.
The value of sales of a given price
Answer: Option C
Explanation:
26. Which one is the assumption of law of demand?
A.
Price of the commodity should not

change
B.
Quantity demanded should not change
C.
Income of the consumer should not
D.
None of these
change
Answer: Option C
Explanation:
27. Which one is increasing function of price:
A.
Demand
B.
Utility
C.
Supply
D.
Consumption
Answer: Option C
Explanation:
28. It describes the law of supply:
A.
Supply curve
B.
Supply schedule
C.
Supply equation
D.
All the three
Answer: Option D
Explanation:
29. Supply curve will shift when:
A.
Price falls
B.
Price rises
C.
Demand shifts
D.
Technology change
Answer: Option D
Explanation:

30. An increase in demand would cause supply curve to:
A.
Shift to the left
B.
Shift to the right
C.
Change in slope of supply curve
D.
No effect on supply
Answer: Option D
Explanation:
31. If price changes by 1% and supply changes by 2% then supply is:
A.
Elastic
B.
Inelastic
C.
Indeterminate
D.
Static
Answer: Option A
Explanation:
32. If elasticity of supply is greater than one. Supply curve will be:
A.
Horizontal
B.
Vertical
C.
Passing through origin
D.
Touching y-axis
Answer: Option D
Explanation:
33. Supply surve:
A.
Is vertical in long run
B.
Is flatter in long run
C.
Is same in long and short run
D.
Is horizontal in both short and long run
Answer: Option B
Explanation:
34. During a particular year farmers experienced a dry weather, if all other factors remain constant,
farmers supply curve for wheat will shift to:
A.
Rightward
B.
Leftward
C.
Downward
D.
Rise in supply
Answer: Option B
Explanation:
35. When supply of a commodity increases without change in price it is called:
A.
Fall in supply
B.
Expansion in supply
C.
Contraction in supply
D.
Rise in supply
Answer: Option D
Explanation:
36. In May 2013, firm was supplying 500kg of sugar of market price of Rs. 30/- per kg. During June
2013, firm's supply of sugar had decreased to 450kg at price Rs. 20/- per kg. These changes show
that supply of sugar is:
A.
Perfectly elastic
B.
Perfectly inelastic
C.
Less elastic
D.
More elastic
Answer: Option C
Explanation:

37. What best explains a shift in market supply curve to the right?
A.
An advertising campaign is successful

in promoting the good
B.
A new technique makes it cheaper to

produce the good
C.
The government introduces a tax on

the good
D.
The price of raw materials increases
Answer: Option B
Explanation:
38. Economic problems arise because:
A.
Wants are unlimited
B.
Resources are scarce
C.
Scarce resources have alternative uses
D.
All of the above
Answer: Option D
Explanation:
39. Which is not an essential condition for an economic problem to arise?
A.
Unlimited wants
B.
Use of money
C.
Scarcity of resources
D.
Alternative uses of scarce resources
B.
How to produce
Answer: Option B
Explanation:
40. Which is not a central problem of an economy?
A.
What to produce
C.
How to maximize private profit
D.
For whom to produce
Answer: Option C
Explanation:
41. Who defined Economics as a 'Science which studies human behaviour as a relationship between
ends and means which have alternative uses?
A.
L. Robbins
B.
Alfred Marshall
C.
Joan Robinson
D.
Paul A. Samuelson
Answer: Option A
Explanation:
42. A mixed economy is characterised by the co-existence of:
A.
Modern and traditional industries
B.
Public and private sectors
C.
Foreign and domestic investments
D.
Commercial and subsistence farming
Answer: Option B
Explanation:
43. Which is not an essential feature of a socialist economy?
A.
Social ownership of the means of

production
B.
Freedom of enterprise
C.
Use of centralized planning
D.
Government decisions
Answer: Option B
Explanation:

44. Which of the following is incorrect?
A.
A function shows the relationship

between two or more variables
B.
Normative Economics studies how the

economic problems facing society
should be solved
C.
A market necessarily refers to a

meeting place between buyers and
sellers
D.
Equilibrium refers to the market

conditions which once achieved, tend to
persist
A.
Allocation of resources of the economy

as between production of different
goods and services
B.
Determination of prices of goods and

services
C.
Behaviour of industrial decision makers
D.
All of the above
Answer: Option C
Explanation:
45. Microeconomics deals with the:
Answer: Option D
Explanation:
46. Which of the following is Microeconomics concerned with?
A.
The size of national output
B.
The levelof employment
C.
Changes in the general level of prices
D.
None of the above
Answer: Option D
Explanation:
47. Formulation of an economic theory involves:

A.
Statement of various assumptions or

postulates
B.
Logical deductions from the

assumptions made
C.
Testing the hypothesis against

empirical evidence
D.
All of the above
Answer: Option D
Explanation:
48. An economic theory is:
A.
An axiom
B.
A proposition
C.
A hypothesis
D.
A tested hypothesis
Answer: Option D
Explanation:
49. Identify the aspect of taxation which is related to normative economics:
A.
Incidence of tax
B.
Effect of tax on the capacity willingness

to work
C.
Equity of tax
D.
None of the above
Answer: Option C
Explanation:
50 Demand for a commodity refers to a:
.
A.
Desire for the commodity
C.
Quantity demanded of that commodity
B.
Need for the commodity
D.
Quantity of the commodity demanded
at a certain price during any praticular

period of time
Answer: Option D
Explanation:
51 Contraction of demand is the result of:

.
A
Decrease in the number of consumers
.
C
.
Increase in the prices of other goods
B
.
Increase in the price of the commodity

concerned
D
.
Decrease in the income of purchasers
Answer: Option B
Explanation:
52 All but one of the following are assumed to remain the same while drawing an individual's
. demand curve for a commodity. Which one is it?
A
.
The preferences of the individual
B
.
His monetary income
C
.
The price of the commodity under

consideration
D
.
The prices of other goods
Answer: Option C
Explanation:
53 Which of the following pairs of commodities is an example of substitutes?
.
A
B
Tea and sugar
Tea and coffee
.
.
C
.
Pen and ink
D
.
Shirt and trousers
Answer: Option B
Explanation:
54 In the case of a straight-line demand curve meeting the two axes, the price-elasticity of
. demand at the mid-point of the line would be:
A
.
B
.
C
.
1.5
D
.
Answer: Option B
Explanation:
55 The Law of Demand, assuming other things to remain constant, establishes the relationship
. between:
A
.
Income of the consumer and the

quantity of a commodity demanded by
him
B
.
Price of a commodity and the quantity

demanded
C
.
Price of a commodity and the demand

for its substitute
D
.
Quantity demanded of a commodity and

the relative prices of its complementary
goods
Answer: Option B
Explanation:
56 Identify the factor which generally keeps the price-elasticity of demand for a commodity now:
.
A Variety of uses for that commodity
B Its low price
.
C
.
Close substitutes for that commodity
D
.
High proportion of the consumer's

income spent on it
Answer: Option B
Explanation:
57 Identify the coefficient of price-elasticity of demand when the percentage increase in the
. quantity of a commodity demanded is smaller than the percentage fall in its price:
A
.
Equal to one
B
.
Greater than one
C
.
Small than one
D
.
Zero
Answer: Option C
Explanation:
58 In the case of an inferior good, the income elasticity of demand is:
.
A
B
Positive
Zero
.
.
C
.
Negative
D
.
Infinite
Answer: Option C
Explanation:
59 In respect of which of the following category of goods is consumer's surplus highest?
.
A Giffen goods
B Necessities
.
C
.
Luxuries
D
.
Prestige goods
B
.
Marginal utility is at its highest point
D
.
Average utility is maximum
Answer: Option B
Explanation:
60 Total utility is maximum when:
.
A
Marginal utility is zero
.
C
.
Marginal utility is equal to average
Answer: Option A
Explanation:
61 If the demand for a commodity is inelastic, an increase in its price will cause the total expenditure
. of the consumers of the commodity to:
A.
Remain the same
B.
Increase
C.
Decrease
D.
Any of the above
Answer: Option B
Explanation:
62. If regardless of changes in its price, the quantity demanded of a commodity remains unchanged,
then the demand curve for the commodity will be:
A.
Horizontal
B.
Vertical
C.
Positively sloped
D.
Negatively sloped
Answer: Option B
Explanation:
63. In the case of a Giffen good, the demand curve will be:
A.
Horizontal
B.
Downward-slping to the right
C.
Backward falling to the left
D.
Upward-slopping to the right
Answer: Option C
Explanation:
64. The budget-line is also known as the:
A.
Iso-utility curve
B.
Production possibility line
C.
Isoquant
D.
Consumption possibility line
Answer: Option D
Explanation:
65. Which one is not a assumption of the theory of demand based on analysis of indifference curves?
A.
Given scale of preferences as between

different combinations of two goods
B.
Diminishing marginal rate of

substitution
C.
Constant marginal utility of money
D.
Consumers would always prefer more

of a particular good to less of it, other
things remaining the same
Answer: Option C
Explanation:

66. The elasticity of substitution between two perfect substitutions is:
A.
Zero
B.
Greater than zero
C.
Less than infinity
D.
Infinity
Answer: Option D
Explanation:
67. The consumer is in equilibrium at a point where the budget line:
A.
Is above an indifference curve
B.
Is below an indifference curve
C.
Is tangent to an indifference curve
D.
Cuts an indifference curve
Answer: Option C
Explanation:
68. An indifference curve slopes down towards right since more of one commodity and less of another
result in:
A.
Same satisfaction
B.
Greater satisfaction
C.
Maximum satisfaction
D.
Decreasing Expenditure
Answer: Option A
Explanation:
69. The Revealed Preference Theory deduces the inverse price-quantity relationship from:
A.
Assumption of indifference
B.
Postulate of utility maximization
C.
Observed behaviour of the consumer
D.
Introspection
Answer: Option C
Explanation:
70. Which of the following statements is incorrect?
A.
An indifference curve must be

downward sloping to the right
B.
Convexity of a curve implies that the

slope of the curve diminishes as one
moves from left to right
C.
The elasticity of substitution between

two goods to a consumer is zero
D.
The total effect of a change in the price

of a good on its quantity demanded is
called the price effect
Answer: Option C

Understanding Supply and Demand Concepts

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If the price of a complement increases, all else equal,

quantity supplied will increase.

demand will increase.

demand will decrease.

supply will decrease.

An increase in the price of golf clubs.

A decrease in the cost of producing golf balls.

An increase in average household income when golf

none of the above

Supply: Qs = -300 + 120P

P = $10 and Q = 300.

P = $3.33 and Q = 500.

none of the above

surplus of 360 units.

shortage of 360 units.

surplus of 300 units.

shortage of 660 units.

none of the above

shortage of 300 units.

shortage of 480 units.

surplus of 180 units.

shortage of 180 units.

What is the demand function when M = $40,000 and PR = $20?

none of the above

From the demand function it is apparent that related good R is

a complement for good X.

a substitute for good X.

From the demand function it is apparent that good X is

P = $15 and Q = 85.

P = $10 and Q = 185.

P = $15 and Q = 235.

at a price higher than $15 there will be a surplus.

at a price lower than $15 there will be a shortage.

When Pi = $20 and F = 60, the INVERSE supply function is

for a particular unit of consumption is computed by taking the difference between

all of the above

Which of the following is not a component of demand?

A leftward shift in the demand curve for tea.

A change in the price of good x.

An increase in consumer income, other things being equal, will

Shift the demand curve for an inferior good to the left.

Multiple Choice Quiz

quantity supplied will increase.

demand will increase.

supply will decrease.

An increase in the price of golf clubs.

A decrease in the cost of producing golf balls.

An increase in average household income when golf

none of the above

supply will increase.

supply will decrease.

demand will decrease.

An increase in the demand for wheat.

A rise in the price of wheat.

An increase in the price of corn.

none of the above

When Sonoma Vineyards increases the price of its

the quantity of this wine supplied.

the demand for this wine.

the supply of this wine.

Which of the following will cause a change in quantity

A change in input prices.