Theory Of Demand And Supply

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  • 1/100 Questions

    Which of the following pairs of goods is an example of substitutes?

    • Tea and sugar.
    • Tea and coffee.
    • Pen and ink.
    • Shirt and trousers.
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Theory Of Demand And Supply - Quiz
About This Quiz

Explore the fundamentals of market behavior with this quiz on the Theory of Demand and Supply. Cover key concepts such as the law of demand, price elasticity, and market substitutes to enhance your understanding of economic principles and prepare for advanced studies.

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  • 2. 

    The Law of Demand, assuming other things to remain constant, establishes the relationship between :

    • Income of the consumer and the quantity of a good demanded by him.

    • Price of a good and the quantity demanded.

    • Price of a good and the demand for its substitute.

    • Quantity demanded of a good and the relative prices of its complementary goods.

    Correct Answer
    A. Price of a good and the quantity demanded.
    Explanation
    The Law of Demand states that there is an inverse relationship between the price of a good and the quantity demanded. This means that as the price of a good increases, the quantity demanded decreases, and vice versa. This relationship assumes that all other factors, such as income, taste, and preferences, remain constant. Therefore, the correct answer is that the price of a good and the quantity demanded are related.

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  • 3. 

    Chicken and fish are substitutes. If the price of chicken increases, the demand for fish will          

    • Increase or decrease but the demand curve for chicken will not change

    • Increase and the demand curve for fish will shift rightwards.

    • Not change but there will be a movement along the demand curve for fish.

    • Decrease and the demand curve for fish will shift leftwards.

    Correct Answer
    A. Increase and the demand curve for fish will shift rightwards.
    Explanation
    When chicken and fish are substitutes, an increase in the price of chicken will lead to an increase in the demand for fish. This is because consumers will switch from chicken to fish as it becomes relatively cheaper compared to chicken. As a result, the demand curve for fish will shift rightwards, indicating a higher quantity demanded at each price level. The demand curve for chicken, however, will not change as it is not directly affected by the price increase of chicken.

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  • 4. 

    All of the following are determinants of demand except:

    • Tastes and preferences.

    • Quantity supplied.

    • Income.

    • Price of related goods.

    Correct Answer
    A. Quantity supplied.
    Explanation
    The question asks for the determinant of demand that is not included in the given options. Quantity supplied is actually a determinant of supply, not demand. Demand refers to the willingness and ability of consumers to purchase a certain quantity of a good or service at a given price, while supply refers to the willingness and ability of producers to offer a certain quantity of a good or service at a given price. Therefore, quantity supplied is not a determinant of demand.

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  • 5. 

    When supply curve moves to right it means    

    • Supply increases

    • Supply decreases

    • Supply remains constant

    • None of the above

    Correct Answer
    A. Supply increases
    Explanation
    When the supply curve moves to the right, it indicates that there has been an increase in the quantity of goods or services that suppliers are willing and able to supply at each price level. This suggests that there has been an increase in the overall supply in the market, resulting in a higher quantity of goods or services being available for consumers.

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  • 6. 

    When supply curve moves to the left it means

    • Smaller supply

    • Larger supply

    • Constant supply

    • None of the above

    Correct Answer
    A. Smaller supply
    Explanation
    When the supply curve moves to the left, it indicates a smaller supply. This means that the quantity of goods or services available in the market has decreased. This could be due to factors such as a decrease in production, increase in production costs, or a decrease in the availability of resources. As a result, the supply of the product decreases, leading to a decrease in the quantity that can be supplied at each price level.

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  • 7. 

    The elasticity of supply is defined as the

    • Responsiveness of the quantity supplied of a good to a change in its price

    • Responsiveness of the quantity supplied of a good without change in its price

    • Responsiveness of the quantity demanded of a good to a change in its price

    • Responsiveness of the quantity demanded of a good without change in its price

    Correct Answer
    A. Responsiveness of the quantity supplied of a good to a change in its price
    Explanation
    The correct answer is "Responsiveness of the quantity supplied of a good to a change in its price." Elasticity of supply measures how much the quantity supplied of a good changes in response to a change in its price. It reflects the sensitivity of suppliers to changes in market conditions. If the price of a good increases, suppliers are likely to increase the quantity supplied, indicating a more elastic supply. Conversely, if the price decreases, suppliers may reduce the quantity supplied, indicating a less elastic supply.

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  • 8. 

    Elasticity of supply is measured by dividing the percentage change in quantity supplied of a good by 

    • Percentage change in income

    • Percentage change in quantity demanded of goods

    • Percentage change in price

    • Percentage change in taste and preference

    Correct Answer
    A. Percentage change in price
    Explanation
    The elasticity of supply is a measure of how responsive the quantity supplied of a good is to changes in its price. It is calculated by dividing the percentage change in quantity supplied by the percentage change in price. This measure helps to determine the sensitivity of suppliers to price changes and their ability to adjust their production levels accordingly. A higher elasticity of supply indicates that suppliers can easily increase or decrease their production in response to price changes, while a lower elasticity suggests that suppliers are less responsive to price fluctuations.

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  • 9. 

    If price of computers increases by 10% and supply increases by 25%. The elasticity of supply is :

    • 2.5

    • 0.4

    • (-)2.5

    • (-)0.4

    Correct Answer
    A. 2.5
    Explanation
    The elasticity of supply measures the responsiveness of the quantity supplied to a change in price. In this case, the price of computers increases by 10% and the supply increases by 25%. A positive percentage change in price and a positive percentage change in supply indicate a positive relationship between price and supply. Therefore, the elasticity of supply is positive, and the correct answer is 2.5.

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  • 10. 

    Elasticity of supply refers to the degree of responsiveness of supply of a good to changes in its :

    • Demand.

    • Price.

    • Cost of production.

    • State of technology.

    Correct Answer
    A. Price.
    Explanation
    The correct answer is "Price." Elasticity of supply measures how much the quantity supplied of a good changes in response to a change in its price. If the supply of a good is elastic, it means that a small change in price will result in a large change in quantity supplied. On the other hand, if the supply is inelastic, it means that a change in price will have a relatively small effect on the quantity supplied. Therefore, price is the key factor that determines the elasticity of supply.

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  • 11. 

     If the quantity supplied is exactly equal to the relative change in price then the elasticity of supply is

    • Less than one

    • Greater than one

    • One

    • None of the above

    Correct Answer
    A. One
    Explanation
    If the quantity supplied is exactly equal to the relative change in price, it means that the supply is perfectly elastic. This implies that any change in price will result in a proportionate change in the quantity supplied. In other words, the elasticity of supply is equal to one, indicating a unitary elasticity.

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  • 12. 

    The luxury goods like jewellery and fancy articles will have         

    • Low income elasticity of demand

    • High income elasticity of demand

    • Zero income elasticity of demand

    • None of the above

    Correct Answer
    A. High income elasticity of demand
    Explanation
    Luxury goods like jewellery and fancy articles are typically associated with high income individuals who have a higher disposable income. As a result, the demand for these goods tends to be more responsive to changes in income levels. This means that when income increases, the demand for luxury goods also increases, and vice versa. Therefore, luxury goods have a high income elasticity of demand.

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  • 13. 

    If, as people's income increases, the quantity demanded of a good decreases, the good is called        

    • A substitute

    • A normal good

    • An inferior good

    • A complement

    Correct Answer
    A. An inferior good
    Explanation
    If the quantity demanded of a good decreases as people's income increases, the good is called an inferior good. This means that as people's income rises, they tend to purchase less of this particular good. Inferior goods are typically lower-quality or less desirable products that people may choose to buy less of as they can afford better alternatives.

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  • 14. 

    The price elasticity of demand is defined as the responsiveness of :

    • Price to a change in quantity demanded.

    • Quantity demanded to a change in price.

    • Price to a change in income.

    • Quantity demanded to a change in income.

    Correct Answer
    A. Quantity demanded to a change in price.
    Explanation
    The correct answer is "Quantity demanded to a change in price." Price elasticity of demand measures how sensitive the quantity demanded of a good or service is to a change in its price. It indicates the percentage change in quantity demanded in response to a percentage change in price. A high price elasticity indicates that demand is highly responsive to price changes, while a low elasticity suggests that demand is not very sensitive to price fluctuations. Therefore, the correct answer is the one that describes the relationship between quantity demanded and price.

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  • 15. 

    The quantity supplied of a good or service is the amount that       

    • Is actually bought during a given time period at a given price

    • Producers wish they could sell at a higher price

    • Producers plan to sell during a given time period at a given price

    • People are willing to buy during a given time period at a given price

    Correct Answer
    A. Producers plan to sell during a given time period at a given price
    Explanation
    The correct answer is "Producers plan to sell during a given time period at a given price." This answer accurately describes the concept of quantity supplied, which refers to the amount of a good or service that producers are willing and able to sell at a specific price during a specific time period. It implies that producers have made a deliberate decision or plan to offer the product for sale at the given price.

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  • 16. 

    If the demand is more than supply then the pressure on price will be

    • Upward

    • Downward

    • Constant

    • None of the above

    Correct Answer
    A. Upward
    Explanation
    When the demand is more than the supply, it creates a scarcity in the market. This scarcity leads to an increase in competition among buyers, resulting in an upward pressure on prices. As buyers compete for limited goods or services, they are willing to pay higher prices to secure their desired products. Therefore, the correct answer is upward.

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  • 17. 

    An increase in the number of sellers of bikes will increase the

    • The price of a bike

    • Demand for bikes

    • The supply of bikes

    • Demand for helmets

    Correct Answer
    A. The supply of bikes
    Explanation
    An increase in the number of sellers of bikes will increase the supply of bikes. This is because more sellers entering the market means there are more bikes available for consumers to purchase. As a result, the overall supply of bikes in the market increases, leading to potentially lower prices and more options for buyers.

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  • 18. 

    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 :

    • 0

    • 1

    • 1.5

    • 2

    Correct Answer
    A. 1
    Explanation
    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 1. This means that a 1% change in price will result in a 1% change in quantity demanded. This indicates a unitary elastic demand, where the percentage change in quantity demanded is equal to the percentage change in price.

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  • 19. 

    If a good is a luxury, its income elasticity of demand is :

    • Positive and less than 1.

    • Negative but greater than -1.

    • Positive and greater than 1.

    • Zero.

    Correct Answer
    A. Positive and greater than 1.
    Explanation
    If a good is considered a luxury, it means that it is not a necessity and is typically purchased when individuals have higher incomes. In this case, the income elasticity of demand for the luxury good would be positive, indicating that as income increases, the demand for the luxury good also increases. Furthermore, the fact that the income elasticity of demand is greater than 1 suggests that the demand for the luxury good is highly responsive to changes in income, meaning that a small increase in income would result in a relatively larger increase in the demand for the luxury good.

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  • 20. 

    The second glass of lemonade gives lesser satisfaction to a thirsty boy. This is a clear case of       

    • Law of demand.

    • Law of diminishing returns.

    • Law of diminishing utility.

    • Law of supply.

    Correct Answer
    A. Law of diminishing utility.
    Explanation
    The law of diminishing utility states that as a person consumes more of a good or service, the additional satisfaction or utility they derive from each additional unit decreases. In this case, the second glass of lemonade gives lesser satisfaction to the thirsty boy, indicating that the utility he derives from each additional glass of lemonade is diminishing. Therefore, the correct answer is the law of diminishing utility.

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  • 21. 

    In the case of an inferior good, income elasticity oi demand is :

    • Positive.

    • Zero.

    • Negative.

    • Infinite.

    Correct Answer
    A. Negative.
    Explanation
    In the case of an inferior good, as income increases, the demand for the good decreases. This means that the income elasticity of demand for an inferior good is negative. When income elasticity of demand is negative, it indicates that the good is a necessity for consumers with lower incomes but becomes less desirable as their income increases.

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  • 22. 

    The consumer is in equilibrium when the following condition is satisfied : (a)  (b)  (c)  (d) None of the above.

    • A

    • B

    • C

    • D

    Correct Answer
    A. C
    Explanation
    In order for the consumer to be in equilibrium, the condition stated in option C must be satisfied. Without knowing the specific condition mentioned in option C, it is impossible to provide a detailed explanation. However, it can be inferred that option C contains the correct condition for the consumer to be in equilibrium, based on the structure of the question.

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  • 23. 

    When economists speak of the utility of a certain good, they are referring to

    • The demand for the good.

    • The usefulness of the good in consumption.

    • The satisfaction gained from consuming the good.

    • The rate at which consumers are willing to exchange one good for another.

    Correct Answer
    A. The satisfaction gained from consuming the good.
    Explanation
    The correct answer is the satisfaction gained from consuming the good. Utility refers to the level of satisfaction or happiness that a consumer receives from consuming a certain good or service. It is a subjective measure and varies from person to person. The utility of a good is determined by factors such as its usefulness, quality, and personal preferences. Economists study utility to understand consumer behavior and make predictions about demand and consumption patterns.

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  • 24. 

    Suppose a consumer's income increases from RS. 30,000 to Rs. 36,000. As a result, the consumer increases her purchases of compact discs (CDs) from 25 CDs to 30 CDs. What is the consumer's income elasticity of demand for CDs?

    • 0.5

    • 1.0

    • 1.5

    • 2.0

    Correct Answer
    A. 1.0
    Explanation
    The consumer's income elasticity of demand for CDs is 1.0. This means that for every 1% increase in income, the consumer's demand for CDs increases by 1%. In this case, the consumer's income increased by 20% (from Rs. 30,000 to Rs. 36,000), and their demand for CDs increased by 20% (from 25 CDs to 30 CDs). This indicates a proportional increase in demand in response to the increase in income, resulting in an income elasticity of demand of 1.0.

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  • 25. 

    The supply of a good refers to :

    • Actual production of the good.

    • Total existing stock of the good.

    • Stock available for sale,

    • Amount of the good offered for sale at a particular price per unit of time.

    Correct Answer
    A. Amount of the good offered for sale at a particular price per unit of time.
    Explanation
    The supply of a good refers to the amount of the good that is offered for sale at a particular price per unit of time. It represents the quantity of the good that producers are willing and able to sell in the market. This definition focuses on the quantity of the good that is available for purchase by consumers, rather than the actual production, total existing stock, or stock available for sale.

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  • 26. 

    Supply is the

    • Limited resources that are available with the seller

    • Cost of producing a good

    • Entire relationship between the quantity supplied and the price of good.

    • Willingness to produce a good if the technology to produce it becomes available.

    Correct Answer
    A. Entire relationship between the quantity supplied and the price of good.
    Explanation
    The correct answer is "Entire relationship between the quantity supplied and the price of good." This answer accurately describes the concept of supply in economics. Supply refers to the quantity of a good or service that producers are willing and able to offer for sale at various prices. It represents the relationship between the quantity supplied and the price of the good, as producers typically increase the quantity supplied as the price of the good rises. This answer captures the essence of this relationship and distinguishes it from other factors such as limited resources, production costs, or willingness to produce.

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  • 27. 

    If the supply of bottled water decreases, the equilibrium price ____________and the equilibrium quantity _________.

    • Increases ; Decreases

    • Decreases; Increases

    • Decreases; Decreases

    • Increases; Increases

    Correct Answer
    A. Increases ; Decreases
    Explanation
    When the supply of bottled water decreases, there is less quantity of bottled water available in the market. This leads to a decrease in the equilibrium quantity, as there is now a shortage of bottled water. However, the demand for bottled water remains the same or may even increase. This creates a situation where there is excess demand for bottled water, causing the price to increase in order to balance the market. Therefore, the equilibrium price increases while the equilibrium quantity decreases.

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  • 28. 

    Demand for a commodity refers to :

    • Desire for the commodity.

    • Need for the commodity.

    • Quantity demanded of that commodity.

    • Quantity of the commodity demanded at a certain price during any particular period of time.

    Correct Answer
    A. Quantity of the commodity demanded at a certain price during any particular period of time.
    Explanation
    Demand for a commodity refers to the quantity of the commodity that consumers are willing and able to purchase at a specific price during a specific time period. It is not just the desire or need for the commodity, but specifically the quantity that is demanded. The demand for a commodity is influenced by factors such as price, income, tastes and preferences, and the availability of substitutes.

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  • 29. 

    Contraction of demand is the result of :   

    • Decrease in the number of consumers.

    • Increase in the price of the good concerned.

    • Increase in the prices of other goods.

    • Decrease in the income of purchasers

    Correct Answer
    A. Increase in the price of the good concerned.
    Explanation
    When the price of a good increases, it becomes more expensive for consumers to purchase. This leads to a decrease in the quantity demanded, resulting in a contraction of demand. As the price of the good goes up, consumers may choose to buy less of it or switch to cheaper alternatives. This decrease in demand is a direct consequence of the increase in price.

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  • 30. 

    By consumer surplus economists mean

    • The area inside the budget line.

    • The area between the average revenue and marginal revenue curves.

    • The different between the maximum amount a person is willing to pay for a good and its market price.

    • None of the above.

    Correct Answer
    A. The different between the maximum amount a person is willing to pay for a good and its market price.
    Explanation
    Consumer surplus refers to the difference between the maximum amount a person is willing to pay for a good and the actual market price they pay. It represents the additional benefit or value that consumers receive when they are able to purchase a good at a price lower than what they are willing to pay. This surplus can be seen as the area between the demand curve and the market price, indicating the extra satisfaction or utility gained by consumers.

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  • 31. 

    The consumer is in equilibrium at a point where the budget line :

    • Is above an indifference curve.

    • Is below an indifference curve.

    • Is tangent to an indifference curve.

    • Cuts an indifference curve.

    Correct Answer
    A. Is tangent to an indifference curve.
    Explanation
    In consumer equilibrium, the budget line represents all the combinations of goods that the consumer can afford given their income and the prices of the goods. An indifference curve represents all the combinations of goods that provide the consumer with the same level of satisfaction. When the budget line is tangent to an indifference curve, it means that the consumer is maximizing their satisfaction given their budget constraint. This is because any other point on the indifference curve would require the consumer to spend more than their budget allows, and any point below the indifference curve would mean the consumer is not fully utilizing their budget.

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  • 32. 

    The quantity demanded of a good or service is the amount that

    • Consumer plan to buy during a given time period at a given price

    • Firms are willing to sell during a given time period at a given price

    • A consumer would like to buy but might not be able to afford

    • Is actually bought during a given time period at a given price.

    Correct Answer
    A. Consumer plan to buy during a given time period at a given price
    Explanation
    The quantity demanded of a good or service refers to the amount that consumers plan to buy during a specific time period at a specific price. This answer choice accurately describes the concept of quantity demanded, which is based on the intentions and preferences of consumers rather than the actual purchases made.

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  • 33. 

    The price of tomatoes increases and people buy tomato puree. You infer that tomato puree and tomatoes are

    • Normal goods

    • Complements

    • Substitutes

    • Inferior goods

    Correct Answer
    A. Substitutes
    Explanation
    When the price of tomatoes increases, people tend to buy tomato puree instead. This suggests that tomato puree and tomatoes are substitutes, meaning that they can be used interchangeably to fulfill the same need or desire. As the price of one increases, consumers switch to the other as a more affordable alternative. This indicates that the two goods are related in such a way that an increase in the price of one leads to an increase in demand for the other.

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  • 34. 

    Which of the following goods is likely to have perfectly inelastic demand?

    • Car

    • Salt

    • Cabbage

    • Sugar

    Correct Answer
    A. Salt
    Explanation
    Salt is likely to have perfectly inelastic demand because it is a basic necessity and does not have many substitutes. Regardless of changes in price, the demand for salt remains relatively constant as people need it for cooking and seasoning food. Therefore, consumers are willing to pay any price for salt, making its demand highly inelastic.

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  • 35. 

    A movement along the demand curve for soft drinks is best described as :

    • An increase in demand.

    • A decrease in demand.

    • A change in quantity demanded.

    • A change in demand.

    Correct Answer
    A. A change in quantity demanded.
    Explanation
    A movement along the demand curve for soft drinks is best described as a change in quantity demanded. This means that there has been a change in the quantity of soft drinks that consumers are willing and able to purchase at a given price. It does not indicate a change in overall demand for soft drinks, but rather a movement along the existing demand curve due to a change in price.

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  • 36. 

    If the price of Pepsi decreases relative to the price of Coke and 7-UP, the demand for :  

    • Coke will decrease.

    • 7-Up will decrease.

    • Coke and 7-UP will increase.

    • Coke and 7-Up will decrease.

    Correct Answer
    A. Coke and 7-Up will decrease.
    Explanation
    If the price of Pepsi decreases relative to the price of Coke and 7-UP, it means that Pepsi becomes relatively cheaper compared to the other two drinks. This will lead consumers to switch from Coke and 7-UP to Pepsi, resulting in a decrease in the demand for both Coke and 7-UP.

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  • 37. 

    Total utility is maximum when :

    • Marginal utility is zero.

    • Marginal utility is at its highest point.

    • Marginal utility is equal to average utility.

    • Average utility is maximum.

    Correct Answer
    A. Marginal utility is zero.
    Explanation
    When marginal utility is zero, it means that consuming an additional unit of a good or service does not provide any additional satisfaction or utility. This indicates that the consumer has reached a point where they are already maximizing their total utility. Any further consumption would not increase their overall satisfaction. Therefore, the total utility is at its maximum when the marginal utility is zero.

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  • 38. 

    The good which cannot be consumed more than once is known as                  

    • Durable good

    • Non-durable good

    • Producer good

    • None of the above

    Correct Answer
    A. Non-durable good
    Explanation
    A non-durable good is a good that is consumed or used up in a short period of time and cannot be used again. Examples of non-durable goods include food, beverages, and personal care products. Unlike durable goods, which are designed to last for an extended period of time, non-durable goods are typically used up or worn out after a single use or within a short period of time. Therefore, the good that cannot be consumed more than once is known as a non-durable good.

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  • 39. 

    Identify the coefficient of price-elasticity of demand when the percentage increase in the quantity of a good demanded is smaller than the percentage fall in its price :

    • Equal to one.

    • Greater than one.

    • Smaller than one.

    • Zero.

    Correct Answer
    A. Smaller than one.
    Explanation
    The coefficient of price-elasticity of demand measures the responsiveness of the quantity demanded to a change in price. When the percentage increase in the quantity of a good demanded is smaller than the percentage fall in its price, it indicates that the demand for the good is relatively inelastic. This means that consumers are not very responsive to changes in price, and a decrease in price does not lead to a proportionate increase in quantity demanded. Therefore, the coefficient of price-elasticity of demand in this scenario is smaller than one.

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  • 40. 

    A horizontal supply curve parallel to the quantity axis implies that the elasticity of supply is :

    • Zero.

    • Infinite.

    • Equal to one.

    • Greater than zero but less than one.

    Correct Answer
    A. Infinite.
    Explanation
    A horizontal supply curve parallel to the quantity axis indicates that the quantity supplied remains the same regardless of changes in price. This implies that the elasticity of supply is infinite because even a small change in price will result in an infinite change in quantity supplied. In other words, suppliers are perfectly responsive to price changes and can infinitely adjust their supply to meet any level of demand.

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  • 41. 

    In Economics when demand for a commodity increases with a fall in its price it is known as                                                                                                                                                                                     

    • Contraction of demand

    • Expansion of demand

    • No change in demand

    • None of the above

    Correct Answer
    A. Expansion of demand
    Explanation
    When the demand for a commodity increases with a fall in its price, it is known as "Expansion of demand." This means that as the price of the commodity decreases, consumers are willing to purchase more of it, leading to an expansion in demand. This can be due to various factors such as increased affordability, promotional offers, or changes in consumer preferences.

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  • 42. 

    The price of hot dogs increases by 22% and the quantity of hot dogs demanded falls by 25%. This indicates that demand for hot dogs is :

    • Elastic.

    • Inelastic.

    • Unitarily elastic.

    • Perfectly elastic.

    Correct Answer
    A. Elastic.
    Explanation
    The price of hot dogs increasing by 22% and the quantity demanded falling by 25% indicates that the demand for hot dogs is elastic. This means that the percentage change in quantity demanded is greater than the percentage change in price. The decrease in quantity demanded is larger than the increase in price, suggesting that consumers are sensitive to changes in price and are willing to reduce their consumption significantly in response to a price increase.

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  • 43. 

    If the quantity demanded of beef increases by 5% when the price of chicken increases by 20%, the cross-price elasticity of demand between beef and chicken is

    • -0.25

    • 0.25

    • -4

    • 4

    Correct Answer
    A. 0.25
    Explanation
    The cross-price elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. In this case, when the price of chicken increases by 20%, the quantity demanded of beef increases by 5%. This indicates a positive relationship between the price of chicken and the quantity demanded of beef. The magnitude of the cross-price elasticity is calculated by taking the percentage change in quantity demanded of beef divided by the percentage change in the price of chicken. In this case, the cross-price elasticity is 0.25, indicating that a 1% increase in the price of chicken leads to a 0.25% increase in the quantity demanded of beef.

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  • 44. 

    Which of the following is a property of an indifference curve?

    • It is convex to the origin.

    • The marginal rate of substitution is constant as you move along an indifference curve.

    • Marginal utility is constant as you move along an indifference curve.

    • Total utility is greatest where the 45 degree line cuts the indifference curve.

    Correct Answer
    A. It is convex to the origin.
    Explanation
    An indifference curve is convex to the origin because it represents the different combinations of two goods that provide the same level of satisfaction to the consumer. The convex shape indicates that as the consumer consumes more of one good, they are willing to give up less of the other good to maintain the same level of satisfaction. This is known as the diminishing marginal rate of substitution, where the consumer becomes less willing to substitute one good for another as they consume more of it.

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  • 45. 

    Elasticity of supply is zero means   

    • Perfectly inelastic supply

    • Perfectly elastic supply

    • Imperfectly elastic supply

    • None of the above

    Correct Answer
    A. Perfectly inelastic supply
    Explanation
    When the elasticity of supply is zero, it means that the quantity supplied does not respond to changes in price. This indicates a perfectly inelastic supply, where the quantity supplied remains constant regardless of price fluctuations. In other words, the suppliers are unable or unwilling to adjust their output in response to changes in price.

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  • 46. 

    If regardless of changes in its price, the quantity demanded of a good remains unchanged, then the demand curve for the good will be :

    • Horizontal.

    • Vertical.

    • Positively sloped.

    • Negatively sloped.

    Correct Answer
    A. Vertical.
    Explanation
    If the quantity demanded of a good remains unchanged regardless of changes in its price, it means that the demand for the good is perfectly inelastic. In this case, the demand curve will be vertical because the quantity demanded does not respond to changes in price. This indicates that consumers are willing to pay the same price for the good regardless of its availability or scarcity.

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  • 47. 

    The supply curve shifts to the right because of ____________.        

    • Improved technology

    • Increased price of factors of production

    • Increased excise duty

    • All of the above

    Correct Answer
    A. Improved technology
    Explanation
    The supply curve shifts to the right because of improved technology. This means that with better technology, producers are able to increase their output at any given price level. This leads to an increase in the quantity supplied at each price, causing the supply curve to shift to the right. As a result, there is a greater supply of goods and services available in the market, which can lead to lower prices and increased consumer welfare.

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  • 48. 

    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?

    • The preference of the individual.

    • His monetary income.

    • Price.

    • Price of related goods.

    Correct Answer
    A. Price.
    Explanation
    The individual's preference, monetary income, and the price of related goods are assumed to remain constant while drawing an individual's demand curve for a commodity. However, the price of the commodity itself is the variable that will change and be represented on the demand curve. As the price of the commodity increases or decreases, the quantity demanded by the individual will change, resulting in a movement along the demand curve.

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  • 49. 

    If the demand for a good is inelastic, an increase in its price will cause the total expenditure of the consumers of the good to :

    • Remain the same.

    • Increase.

    • Decrease.

    • Any of these.

    Correct Answer
    A. Increase.
    Explanation
    When the demand for a good is inelastic, it means that the quantity demanded is not very responsive to changes in price. In this case, if the price of the good increases, the total expenditure of the consumers will also increase. This is because even though the price has increased, the quantity demanded does not decrease significantly, resulting in consumers spending more money on the good. Therefore, an increase in price leads to an increase in total expenditure for consumers when the demand is inelastic.

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  • Feb 06, 2024
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  • Feb 28, 2012
    Quiz Created by
    Sweetsalman123

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