MCQs and True/False

Chapter 3A- Demand Analysis and Chapter 3B- Elasticity of Demand

1- In the case of positive income elasticity, True

demand for normal goods increases with

increase in income.

2-In case of negative income elasticity, False

demand for inferior goods increases with an

increase the in income consumer.

3-In the case of zero income elasticity, the False

demand for necessary goods increases with a

decrease in income.

4-Positive cross elasticity shows the True

substitution effect. Example, tea and coffee

5- Negative cross elasticity doesn’t False

demonstrates the effect of complementary

goods. Example, tea and sugar.

6-Zero- cross elasticity is about non-related True

goods. Price of one commodity is not

influenced the price of other commodity.

Example, tea and books.

7-Symbolically the perfectly elastic demand is True

written as Ed=∞

8- Demand is unit elastic if it is less than 1.0 False

9- In the case of unitary elastic demand, the True

slope of the demand curve is a 'rectangular

hyperbola'.

10- In the case of relatively inelastic demand, False

the demand is slope curve is flatter.

11- In case of relative elastic demand, the True

demand is slope curve is flatter.

12- Individual demand curve is a graphical True

representation of the individual demand

schedule.

13- An increase in income in the countries False

that are developing leads the curve of

demand shift to left.

14- If a substitute good is available at a lower True

price than people will demand cheaper

substitute good than costly good.

15-If the consumer expects the price to fall in False

future, he will buy more in the present at the

prevailing price.

16-Complementary goods are products that True

rise in value when the demand for relative

products increases.

17-Income of a consumer decides purchasing True

power which in turn influences the demand

for the product.

18-In Economics, demand means a desire True

which is backed by willingness and ability to

pay.

19-Direct demand is not the demand by the False

consumer for goods which satisfy their wants

directly.

20-The law of demand explains the functional True

relationship between price and quantity

demanded.

21- Perfectly elastic demand resulting from True

infinite change in quantity demanded.

22- If the proportion of expenditure in a False

person's income is small, then demand for

the product is relatively elastic.

Choose the correct answer.

1-It refers to a change in quantity demanded of one commodity due to a change in the price of

other commodity.

a. Cross elasticity

b. Income elasticity

c. Price elasticity

d. a and b

2- When a percentage change in price has no effect on the quantity demanded of a commodity

it is called ---------------------------

a. Perfectly elastic demand

b. Relative elastic demand

c. Relative inelastic demand

d. Perfectly inelastic demand

3- When a percentage change in price leads to a proportionate change in quantity demanded

then demand is said to be

a. Perfectly elastic demand

b. Unitary elastic demand

c. Relative inelastic demand

d. Perfectly inelastic demand

4- When a percentage change in price leads to more than proportionate change in quantity

demanded, the demand is said to be

a. Relatively elastic demand

b. Unitary elastic demand

c. Relative inelastic demand

d. Perfectly inelastic demand

5- What is the unitary elastic demand for the rectangular hyperbola?

a. Ed >1

b. Ed = 0

c. Ed = 1

d. Ed <1

6- Which one of the following is not a main type of elasticity of demand?

a. Price elasticity of demand

b. Consumer elasticity of demand

c. Cross elasticity of demand

d. Income elasticity of demand

7- The demand for the good like salt is

a. Elastic

b. Inelastic

c. Unitary elastic

d. Perfectly elastic

8- The price elasticity is denoted by

a. Ed

b. Ef

c. Em

d. Ek

9-Generally the demand for ……........is inelastic.

a. Luxuries

b. Normal goods

c. Necessities

d. a and b

10- When the quantity demanded of a commodity does not respond to the change in the price,

the demand is called --------------------------

a. Perfectly elastic demand

b. Unitary elastic demand

c. Relative inelastic demand

d. Perfectly inelastic demand

11- Cross elasticity of demand is --------------------------

a. Negative for complementary goods

b. Positive for complementary goods

c. Positive for inferior goods

d. Negative for normal goods

12- For which product income elasticity of demand is most likely to be negative?

a. Computer

b. Branded Clothes

c. Latest mobile phone

d. Bread

13- Which is the true case for perfectly inelastic demand?

a. Mona Lisa painting

b. Inexpensive necessities

c. Foreign exchange currency

d. Life-saving medicines

14- What does it mean?

% change in Quantity demanded = % change in Price.

a. Perfectly elastic demand

b. Relative elastic demand

c. Unitary elastic demand

d. Perfectly inelastic demand

15- Describe your demand for medicine if you buy the same amount of it after a large price

increase.

a. Elastic

b. Perfectly inelastic

c. Hyper elastic

d. a and b

16- If consumer used to buy 10 units at $4 each and now buys 15 units when the price is $3, her

a. Quantity demanded has decreased

b. Supply has increased

c. Quantity demanded has increased

d. Supply has decreased

17- Market demand curves are obtained by

a. Summing the quantities every consumer is willing to buy at each different price

b. Observing the behavior of an individual consumer in a market

c. Observing the prices and quantities sold in a market over time and plotting those price-

quantity combinations in a graph

d. Determining the price each consumer is willing to pay for the good & summing those

prices across all consumers

18- To access Internet services, consumers must use a computer. If computer prices fall, what is

the effect on the demand for Internet services

a. The demand for Internet services increases

b. the demand for Internet services decreases

c. The demand for Internet services remains unchanged

d. The demand for Internet services could increase, decrease, or stay the same depending

on other factors

19- If the demand for used cars decreases after the price of a new car falls, used cars and new

cars are

a. Inferior goods

b. Substitute goods

c. Complementary goods

d. Normal goods

20- If the demand for a good increase when people's incomes increase,

a. The good is an inferior good

b. The law of demand is violated

c. The good's demand curve must be upward sloping

d. The good is a normal good

21- When the price of a product increases, a consumer is able to buy less of it with a given

money income. This describes:

a. The cost effect

b. The inflationary effect

c. The income effect

d. The substitution effect

22- The income & substitution effects account for

a. The upward sloping supply curve

b. The downward sloping demand curve

c. Movements along a given supply curve

d. The "other things equal" assumption

23- The law of demand states that

a. Price and quantity demanded are inversely related

b. The larger the number of buyers in a market, the lower will be product price

c. Price and quantity demanded are directly related

d. Consumers will buy more of a product at high prices than at low prices

24- If the price of printers goes down, what happens in the market for ink cartridges?

a. Supply decreases

b. Demand decreases

c. Demand increases-

d. Supply increases

24-One of the reasons of downwords sloping curve is -----------

a. Law of diminishing marginal utility

b. Supply creates its own demand

c. Inferior goods

d. a and b

25- Movement along the demand curve illustrates

a. Shift in quantity demanded

b. Complement effect

c. Change in quantity demanded

d. Income effect

26- Increase in demand is shown by demand curve when

a. The curve shifts right

b. The curve shifts left

c. Movement along the curve there is no change

d. Movement along the curve

27-Goods for which demand goes down when income goes up are called

a. Public Goods

b. Inferior Goods

c. Normal Goods

d. Private Goods

28-Increase in demand can occur due to:

a. Increase in income of the consumer

b. Decrease in price of the complementary good

c. Increase in price of the substitutes

d. a and b

29- When we draw the demand curve, which assumptions are there?

a. The substitute price should not change

b. The curve for demand should be linear

c. There should be no change in commodity price

d. The demanded quantity does not change

30- --------------------due to unfavorable changes in other factors like tastes, income of the

consumer, climatic conditions etc. and the price remains constant.

a. Horizontal demand curve

b. Increase/decrease in quantity demanded

c. No change in quantity demanded

d. a and b

31-Ed = 0 in case of ................

a. Luxuries

b. Normal goods

c. Necessities

d. Comforts

32-When percentage change in quantity demanded is more than the percentage change in

price, the demand curve is ................

a. Flatter

b. Steeper

c. Rectangular

d. Horizontal

33- When percentage change in quantity demanded is less than the percentage change in price,

the demand curve is ................

a. Flatter

b. Steeper

c. Rectangular

d. Horizontal

Short Questions

Chapter 3A- Demand Analysis and Chapter 3B- Elasticity of Demand

Question 1-Explain elasticity and elasticity of demand.

The term elasticity indicates the responsiveness of one variable to a change in the other

variable.

The elasticity of demand refers to the degree of responsiveness of quantity demanded to a

change in its price or any other factor

Question 2- What is income elasticity?

It refers to the degree of responsiveness of a change in quantity demanded to a change in

income only, other factors including price remain unchanged. It is expressed as

Question 3- What is price elasticity?

According to Prof. Alfred Marshall, price elasticity of demand is a ratio of proportionate change

in the quantity demanded of a commodity to a given proportionate change in its price only.

Question 4- What is relatively inelastic demand?

Relatively inelastic demand (Ed < 1):

When a percentage change in price leads to less than proportionate change in the quantity

demanded, demand is said to be relatively inelastic. For example, 50% fall in price leads to 25%

rise in quantity demanded.

In figure, when price falls from OP to OP1 (50%), demand rises from OQ to OQ1 (25%).

Therefore, the demand curve has a steeper slope.

Question 5- What is the difference between the relative inelastic demand and relative elastic

demand?

In the case of relative inelastic demand, a change in demand is less than a change in price, and

symbolically Ed < 1. Whereas, for relative elastic demand, a change in demand is more than a

change in price and symbolically Ed > 1.

Question 6- What are the slopes of the demand curve for relative inelastic demand and

relative elastic demand?

In the case of relative inelastic demand, the demand curve has a steeper slope and symbolically

Ed < 1. Whereas, for relative elastic demand, the demand curve has a flatter slope and

symbolically Ed > 1.

Question 7- How do the habits of individuals and durability affect the elasticity of demand?

Habits make a demand for certain goods relatively inelastic. For example, addicted goods,

drugs, etc. The demand for durable goods is relatively elastic. For example, furniture, washing

machine, etc. Demand for perishable goods is inelastic. For example, milk, vegetables, etc.

Question 8 - How do the income of the consumer and the urgency of needs affect the

elasticity of- demand?

Demand for goods is usually inelastic if the consumer has a high income. The demand pattern

of a very rich and an extremely poor person is rarely affected by significant changes in price.

Goods which are urgently needed will have relatively inelastic demand. For example, medicines.

Luxury goods which are less urgent have relatively elastic demand.

Question 9- What is the perfectly elastic demand?

When a slight or zero change in the price brings about an infinite change in the quantity

demanded of that commodity, it is called perfectly elastic demand. It is only a theoretical

concept. For example, 10% fall in price may lead to an infinite rise in demand.

Question 10-What is perfectly inelastic demand?

When a percentage change in price has no effect on the quantity demanded of a commodity it

is called perfectly inelastic demand. For example, 20% fall in price will have no effect on

quantity demanded.

Question 11- Write explanation of graph.

When price rises from OP to OP1 or when price falls from

OP to OP2, demand remains unchanged at OQ. Therefore, the demand curve is a vertical

straight line parallel to the Y axis, indicating perfectly inelastic demand.

Question 12- What are the features are demand?

1) Demand is a relative concept.

2) Demand is essentially expressed with reference to time and price.

Question 13- What is individual demand and individual demand schedule?

Individual demand is the quantity of a commodity demanded by a consumer at a given price

during a given period of time. Individual demand schedule is a tabular representation showing

different quantities of commodities that an individual consumer is prepared to buy at various

prices over a given period of time.

Question 14-What is income effect?

In the case of normal goods, when price falls, purchasing power (real income) of a consumer

increases which enables him to buy more of that commodity. This is known as income effect.

Question 15- Explain any reason of downward slopping demand curve?

In case of substitute goods, when the price of a commodity rises, the consumer tends to buy

more of its substitute and less of that commodity whose price has increased. This is known as

substitution effect.

Question 16-What is the difference between competitive demand and composite demand?

The demand for a commodity that can be put to several uses is known as composite demand.

For example, electricity is demanded for several uses such as light, fan, washing machine etc.

Competitive demand is demand for those goods which are substitutes for each other. For

example, tea or coffee, sugar or jaggery etc.

Question 17: Write the explanation of graph.

X axis represents the demand for the commodity and Y axis

represents the price of commodity x. DD is the demand curve which slopes downward from left

to right due to an inverse relationship between price and quantity demanded.

Question 18: Why Giffen's paradox shows the demand curve is upwards sloping?

Inferior goods or low-quality goods are those goods whose demand does not rise even if their

price falls. At times, demand decreases when the price of such commodities falls. Sir Robert

Giffen observed this behavior in England in relation to bread. He noted that, when the price of

bread declined, people did not buy more because of an increase in their real income or

purchasing power. They preferred to buy superior good like meat. This is known as Giffen's

paradox.

Question 19- Observe the given diagram and answer the following questions:

1) Rightward shift in demand curve increase in demand

2) Leftward shift in demand curve decrease in demand

3) Price remains constant

Question 20- Give one reason for a shift in the demand curve.

Shift in the demand curve occurs due to changes in other determinants of demand like the price

of related goods, the income of the consumers, etc other than own price of the commodity.

Question 21- Write the causes of downward slopping demand curve?

1. Law of Diminishing Marginal Utility

2. Income effect

3. Substitution effect

4. Size of consumer group

5. Different uses

Question 22- What is shift in demand curve?

It occurs when demand for a commodity is related to factors other than own price of the

commodity. When more is demanded at the same price, there is rightward shift in demand

curve (called increase in demand), when less is demanded at the same price, there is leftward

shift in demand curve (called a decrease in demand).

Question 23: What is the demand schedule?

A demand schedule is a table showing the relationship between different quantities of a

commodity to be purchased at different prices of that commodity.

Question 24: What is meant by normal goods in economics?

Normal goods are the goods for which the demand is directly related to consumer’s income, i.e.

with rise in income demand rises and vice-versa e.g. full cream milk, pulses, grains, etc.

Question 25: Explain the diagram

Expansion of demand refers to rise in quantity demanded due to fall in price alone while other

factors like tastes, income of the consumer, size of population etc. remain unchanged.

Demand moves in downward direction on the same demand curve. , DD is demand curve. A

downward movement on the same demand curve from point a to point b indicates an

expansion of demand.

Question 26- Explain the diagram

There are certain exceptions to the law of demand. It means that under exceptional

circumstances, consumer buys more when the price of commodity rises and buys less when

price of commodity falls. In such cases, demand curve slopes upwards from left to right. i.e. the

demand curve has a positive slope as shown in fig.

Question 27-Write the explanation of graph

When a slight or zero change in the price brings

about an infinite change in the quantity demanded of that commodity, it is called perfectly

elastic demand. It is only a theoretical concept. For example, 10% fall in price may lead to an

infinite rise in demand. The demand curve DD is a horizontal line parallel to the X-axis indicating

perfectly elastic demand. Ed = ∞

Question 27-Write the explanation of graph

When a percentage change in price leads to a

proportionate change in quantity demanded then demand is said to be unitary elastic. For

example, 50% fall in price of a commodity leads to 50% rise in quantity demanded.

When price falls from OP to OP1 (50%), demand rises from OQ to OQ1 (50%). Therefore, the

slope of the demand curve is a 'rectangular hyperbola'. Ed = 1

Fate
Question 28- How do you relate the availability of substitute goods to the elasticity of

demand?

Demand for a commodity will be more elastic, if its close substitutes are available in the

market. For example, lemon juice, sugarcane juice etc. But commodities having no close

substitutes like salt the demand will be inelastic.

Elastic if: demand commodity having close substitutes. Exp. lemon juice

Inelastic it: demand commodity not having close substitutes. Exp. Salt