Theory Of Demand And Supply

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

Explanation

Tea and coffee are an example of substitutes because they are both beverages that can be consumed to fulfill the same need or desire. If someone prefers tea but it is not available, they may choose to drink coffee instead as a substitute. Therefore, tea and coffee can be easily substituted for each other based on personal preference or availability.

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Demand And Supply Quizzes & Trivia

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.

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

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          

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:

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    

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

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

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

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

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

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

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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12. The luxury goods like jewellery and fancy articles will have         

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

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

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

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

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

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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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 :

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

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

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

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

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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23. 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?

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

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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25. Supply is the

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

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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27. Demand for a commodity refers to :

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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28. By consumer surplus economists mean

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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29. The supply of a good refers to :

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

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

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

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

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

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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35. Contraction of demand is the result of :   

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

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

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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38. 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 :

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

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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40. Total utility is maximum when :

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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41. Elasticity of supply is zero means   

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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42. 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

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

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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44. 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 :

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

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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46. Elasticity of supply is greater than one when

Explanation

When the elasticity of supply is greater than one, it means that the quantity supplied is more responsive to changes in price. In other words, a small change in price will result in a relatively larger change in the quantity supplied. This indicates that suppliers are willing and able to adjust their production levels significantly in response to price changes, showing a high level of flexibility in the supply of the goods or services.

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

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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48. Which of the following statements is correct?                                                              

Explanation

When the cost of producing a commodity decreases, it becomes more profitable for suppliers to produce and supply more of the commodity. This is because lower costs mean higher profit margins for suppliers, making it financially viable to increase the quantity supplied. Therefore, the statement "With lower cost, it is profitable to supply more of the commodity" is correct.

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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 :

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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50. A relative price is      

Explanation

The correct answer is "The ratio of one money price to another." A relative price refers to the comparison between the prices of two different goods or services. It is the ratio of one money price to another, indicating the exchange rate or value of one item in terms of another. It helps determine the affordability and value of different goods and services in relation to each other.

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51. Demand is the         

Explanation

The correct answer is "Entire relationship between the quantity demanded and the price of a good." This answer accurately describes the concept of demand, which is the relationship between the quantity of a good that consumers are willing and able to buy at different prices. It implies that as the price of a good increases, the quantity demanded decreases, and vice versa. This answer encompasses the fundamental principle of demand in economics.

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52. Potato chips and popcorn are substitutes. A rise in the price of potato chips wil ________________ the demand for popcorn and the quantity of popcorn will _______________.

Explanation

When two goods are substitutes, an increase in the price of one good will lead to an increase in the demand for the other good. In this case, if the price of potato chips rises, people may choose to buy popcorn instead, leading to an increase in the demand for popcorn. Additionally, the quantity of popcorn consumed will also increase because people are substituting potato chips with popcorn. Therefore, both the demand for popcorn and the quantity of popcorn will increase.

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53. When total demand for a commodity whose price has fallen increases, it is due to:  

Explanation

When the total demand for a commodity increases as a result of a decrease in its price, it is due to the price effect. This means that consumers are more willing to purchase the commodity because it has become more affordable. The price effect is one of the key factors that influences consumer behavior and demand for goods and services.

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54. With an increase in the price of diamond, its demand also increases. This is because it is a:      

Explanation

A conspicuous good is a type of product that is purchased for the purpose of displaying wealth or social status. When the price of a diamond increases, its demand also increases because people perceive diamonds as a luxury item that signifies wealth and status. Therefore, the increase in price makes diamonds more desirable and sought after, leading to an increase in demand.

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55. In a very short period the supply

Explanation

The correct answer is "Can not be changed." This suggests that the supply mentioned in the question cannot be altered or modified within a short period of time. This implies that the supply is either fixed or limited, and cannot be increased or decreased easily.

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56. The supply curve shifts to the right because of ____________.        

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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57. 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?

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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58. A vertical supply curve parallel to Y axis implies that the elasticity of supply is :

Explanation

A vertical supply curve parallel to the Y axis indicates that the quantity supplied does not respond to changes in price. This means that the elasticity of supply is zero, as there is no change in quantity supplied regardless of the change in price.

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59. In the case of a Giffen good, the demand curve will be :                      

Explanation

A Giffen good is a rare type of inferior good where the demand for the good increases as its price rises. This goes against the law of demand, which states that as the price of a good increases, the quantity demanded decreases. In the case of a Giffen good, the income effect dominates the substitution effect, causing consumers to actually buy more of the good as its price increases. This leads to an upward-sloping demand curve, as the quantity demanded increases with higher prices.

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60. The quantity purchased will remain constant irrespective of the change in income. This is known as

Explanation

Zero income elasticity of demand means that the quantity purchased remains constant regardless of changes in income. This implies that the demand for the product is not affected by changes in income levels. In other words, people's purchasing behavior for this product does not depend on their income.

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61. The price elasticity of demand for hamburger is      

Explanation

The correct answer is "The percentage increase in the quantity demanded of hamburger when the price of hamburger falls by 1 per cent per rupee." This is because price elasticity of demand measures the responsiveness of quantity demanded to changes in price. A higher percentage increase in quantity demanded when the price falls indicates a more elastic demand, meaning that consumers are more responsive to price changes. Therefore, this option represents the concept of price elasticity of demand accurately.

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62. Demand for a good will tend to be more elastic if it exhibits which of the following characteristics?

Explanation

The elasticity of demand measures the responsiveness of the quantity demanded to a change in price. When a good has many substitutes available, consumers have more options to choose from if the price of the good increases. This means that consumers are more likely to switch to a substitute if the price of the good becomes too high, making the demand for the good more elastic.

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63. The aim of the consumer in allocating his income is to ____________________.             

Explanation

The aim of the consumer in allocating his income is to maximize his total utility. This means that the consumer wants to allocate his income in a way that maximizes his overall satisfaction or happiness from consuming goods and services. By maximizing total utility, the consumer is making choices that provide the greatest amount of satisfaction and enjoyment from the goods and services he purchases.

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64. Apple juice and orange juice are substitutes in consumption and apple juice and apple sauce are substitutes in production. If the price of orange juice___________ or theprice of apple sauce__________, then the price of apple juice will __________.                         

Explanation

If the price of orange juice increases, it will become relatively more expensive compared to apple juice. As a result, consumers may switch from orange juice to apple juice, increasing the demand for apple juice and causing its price to increase. Similarly, if the price of apple sauce increases, it will raise the production costs for apple juice, leading to a decrease in its supply. This decrease in supply will cause the price of apple juice to increase. Therefore, if the price of orange juice or apple sauce increases, the price of apple juice will increase as well.

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65. Conspicuous goods are also known as      

Explanation

Conspicuous goods are products or services that are purchased and displayed to show off one's wealth or social status. They are meant to be seen and admired by others. These goods are often associated with prestige, as they are expensive and exclusive. They are also referred to as snob goods because they are sought after by individuals who want to be seen as elite or exclusive. The term "Veblen goods" is derived from the economist Thorstein Veblen, who described them as goods that have an inverse relationship between price and demand - as the price increases, the demand also increases due to their perceived high status. Therefore, all three terms - prestigious goods, snob goods, and Veblen goods - are used interchangeably to refer to conspicuous goods.

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66. As income increases, the consumer will go in for superior goods and consequently the demand for inferior goods will fall. This means:  

Explanation

As income increases, consumers tend to shift their preferences towards superior goods, which are considered higher quality or more luxurious. This leads to a decrease in the demand for inferior goods, which are lower quality or less desirable. Therefore, the relationship between income and demand for inferior goods is negative, indicating a negative income elasticity of demand.

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67. Comforts lies between the        

Explanation

The correct answer is "Necessaries and luxuries". This answer suggests that comforts are positioned between necessaries and luxuries. This implies that comforts are not essential like necessaries, but they are also not as extravagant as luxuries.

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68. The way in which rational consumers allocate their expenditure on goods and services is best described by ________________.

Explanation

The law of diminishing marginal utility states that as a consumer consumes more units of a particular good or service, the additional satisfaction or utility derived from each additional unit decreases. This concept helps explain how rational consumers allocate their expenditure on goods and services. As the marginal utility of a good decreases, consumers are less willing to spend additional money on it and instead allocate their expenditure towards goods or services that provide higher marginal utility. Therefore, the law of diminishing marginal utility best describes the way in which rational consumers allocate their expenditure.

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69. A decrease in price will result in an increase in total revenue if :

Explanation

When the percentage change in quantity demanded is greater than the percentage change in price, a decrease in price will result in an increase in total revenue. This is because the decrease in price leads to a proportionally larger increase in the quantity demanded, causing the total revenue to rise. In other words, the increase in quantity sold compensates for the decrease in price, resulting in higher total revenue.

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70. An increase in the supply of a good is caused by :  

Explanation

An increase in the supply of a good can be caused by improvements in its technology, as this allows for more efficient production and higher output levels. A fall in the prices of other goods can also lead to an increase in supply, as producers may shift their resources and production towards the goods that have become relatively more profitable. Additionally, a fall in the prices of factors of production, such as labor or raw materials, can reduce production costs and incentivize producers to increase their supply. Therefore, all of the above factors can contribute to an increase in the supply of a good.

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71. The price of a commodity decreases from Rs. 6 to Rs. 4 and his demand for goods increases from 10 units to 15 units, Find the coefficient of price elasticity.

Explanation

The coefficient of price elasticity measures the responsiveness of demand to a change in price. In this case, the price decreases from Rs. 6 to Rs. 4, which is a 33.33% decrease. The demand increases from 10 units to 15 units, which is a 50% increase. To calculate the coefficient of price elasticity, we divide the percentage change in demand (50%) by the percentage change in price (-33.33%). The result is -1.5, indicating that the demand for the commodity is relatively elastic, meaning that a small change in price leads to a relatively larger change in demand.

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72. At higher prices people demand more of certain goods not for their worth but for their prestige value - This is called

Explanation

The Veblen effect refers to the phenomenon where people demand more of certain goods at higher prices, not because of their intrinsic worth, but because they have a higher prestige value. In other words, the higher the price of a product, the more desirable it becomes as a status symbol. This effect is named after Thorstein Veblen, an economist who first identified and described this behavior in his book "The Theory of the Leisure Class" in 1899.

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73. If the percentage change in supply is less than the percentage change in price it is called                                                                

Explanation

If the percentage change in supply is less than the percentage change in price, it is called "less elastic supply." This means that the quantity supplied is not very responsive to changes in price. In other words, even if the price increases or decreases by a certain percentage, the change in the quantity supplied will be smaller than that percentage. This indicates that the supply is relatively inelastic and less responsive to changes in price.

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74. Which of the following statements is incorrect?

Explanation

The elasticity of substitution between two goods to a consumer is not necessarily zero. It can vary depending on the preferences and substitutability of the goods.

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75. With a fall in the price of a commodity:

Explanation

When the price of a commodity falls, the consumer's real income increases because they can now purchase more of the commodity with the same amount of money. This means that the purchasing power of the consumer has increased, allowing them to afford more goods and services. Therefore, the correct answer is that the consumer's real income increases.

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76. Suppose a department store has a sale on its silverware. If the price of a plate-setting is reduced from Rs. 300 to Rs. 200 and the quantity demanded increases from 3,000 plate- settings to 5,000 plate-settings, what is the price elasticity of demand for silverware?

Explanation



The price elasticity of demand (PED) can be calculated using the formula:

PED=Percentage change in quantity demandedPercentage change in pricePED=Percentage change in pricePercentage change in quantity demanded​

First, we need to find the percentage change in quantity demanded:

Percentage change in quantity demanded=New quantity−Old quantityOld quantity×100Percentage change in quantity demanded=Old quantityNew quantity−Old quantity​×100 Percentage change in quantity demanded=5000−30003000×100=20003000×100=66.67%Percentage change in quantity demanded=30005000−3000​×100=30002000​×100=66.67%

Next, we find the percentage change in price:

Percentage change in price=New price−Old priceOld price×100Percentage change in price=Old priceNew price−Old price​×100 Percentage change in price=200−300300×100=−100300×100=−33.33%Percentage change in price=300200−300​×100=300−100​×100=−33.33%

Now, we can calculate the price elasticity of demand:

PED=66.67%−33.33%=−2PED=−33.33%66.67%​=−2

Therefore, the price elasticity of demand for silverware is -2.
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77. An increase in price will result in an increase in total revenue if :

Explanation

When the percentage change in quantity demanded is less than the percentage change in price, it means that the demand for the product is inelastic. Inelastic demand indicates that consumers are not very responsive to price changes, so even if the price increases, the quantity demanded will not decrease significantly. As a result, the increase in price will lead to an increase in total revenue because the additional revenue gained from the higher price outweighs the decrease in quantity demanded.

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78. If good growing conditions increases the supply of strawberries and hot weather increases the demand for strawberries, the quantity of strawberries bought       .

Explanation

When good growing conditions increase the supply of strawberries and hot weather increases the demand for strawberries, the quantity of strawberries bought will increase. However, the price of strawberries might rise, fall, or not change depending on the balance between the increase in supply and the increase in demand. If the increase in supply is greater than the increase in demand, the price might fall. If the increase in demand is greater than the increase in supply, the price might rise. And if the increase in supply and demand is balanced, the price might not change.

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79. Identify the factor which generally keeps the price-elasticity of demand for a good low :

Explanation

The factor that generally keeps the price-elasticity of demand for a good low is its low price. When a good has a low price, consumers are less sensitive to changes in its price because the cost of purchasing it is relatively low compared to their income. Therefore, even if the price of the good increases, consumers may still continue to purchase it, resulting in a low price-elasticity of demand.

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80. A discount store has a special offer on CDs. It reduces their price from Rs.150 to Rs. 100. Suppose the store manager observes that the quantity demanded increases from 700 CDs to 1,300 CDs. What is the price elasticity of demand for CDs?

Explanation

The price elasticity of demand measures the responsiveness of quantity demanded to a change in price. In this case, the price of CDs is reduced from Rs.150 to Rs.100, resulting in an increase in quantity demanded from 700 CDs to 1,300 CDs. The price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price. Since the quantity demanded increases by 85.7% (from 700 to 1,300) and the price decreases by 33.3% (from Rs.150 to Rs.100), the price elasticity of demand is 85.7% / 33.3% = 2.57. However, since the options provided are not exact matches, the closest option is 1.50.

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81. Point elasticity is useful for which of the following situations?

Explanation

Point elasticity is a measure of how responsive the quantity demanded or supplied is to a change in price at a specific point. In this case, the auto producer wants to determine the response of consumers to a specific price change of lowering the price of cars by Rs.100. This situation involves a specific price change and the corresponding change in quantity demanded, making it suitable for point elasticity analysis. The other situations mentioned involve different types of price changes (doubling the price, lowering the price by a percentage), which would require different elasticity measures.

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82. Which one is not an assumption of the theory of demand based on analysis of indifference curves?

Explanation

The theory of demand based on analysis of indifference curves assumes that consumers have a scale of preferences, meaning they can rank different combinations of two goods. It also assumes that there is a diminishing marginal rate of substitution, which means that as a consumer consumes more of one good, they are willing to give up less of the other good to obtain additional units of the first good. Additionally, the theory assumes that consumers would always prefer more of a particular good to less of it, assuming all other factors remain constant. However, the theory does not assume constant marginal utility of money, as the value of money can vary for consumers depending on their individual circumstances and preferences.

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83. If electricity demand is inelastic, and electric rates increase, which of the following is likely to occur?  

Explanation

When electricity demand is inelastic, it means that the quantity demanded is not very responsive to changes in price. Therefore, if electric rates increase, the quantity demanded will not decrease significantly. Instead, it will only fall by a relatively small amount. This suggests that consumers are not very sensitive to price changes and will continue to consume electricity even at higher rates, albeit at a slightly lower quantity.

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84. Suppose the demand for meals at a medium-priced restaurant is elastic. If the management of the restaurant is considering raising prices, it can expect a relatively :

Explanation

When the demand for meals at a medium-priced restaurant is elastic, it means that consumers are highly responsive to changes in price. Therefore, if the restaurant decides to raise prices, it can expect a large fall in the quantity demanded. This is because the increase in price will result in a significant decrease in the number of meals that consumers are willing to purchase. The elasticity of demand indicates that even a small increase in price can have a substantial impact on the quantity demanded.

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85. When income increases the money spent on necessaries of life may not increase in the same proportion, This means

Explanation

When income increases, if the money spent on necessaries of life does not increase in the same proportion, it suggests that the demand for these necessaries is not very responsive to changes in income. In other words, the percentage change in quantity demanded is less than the percentage change in income. This indicates that the income elasticity of demand is less than one.

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86. In the book market, the supply of books will decrease if any of the following occurs except

Explanation

A decrease in the price of the book would not lead to a decrease in the supply of books. In fact, it could potentially lead to an increase in the supply as more people may be willing to purchase books at a lower price. The other options mentioned in the question, such as a decrease in the number of book publishers, an increase in the future expected price of the book, and an increase in the price of paper used, could all potentially lead to a decrease in the supply of books.

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87. The supply function is given as Q= -100 + 10P. Find the elasticity using point method, when price is Rs.15.

Explanation

The elasticity of supply measures the responsiveness of quantity supplied to a change in price. To calculate the elasticity using the point method, we need to find the derivative of the supply function with respect to price, and then multiply it by the ratio of price to quantity. In this case, the supply function is Q = -100 + 10P, and we want to find the elasticity when the price is Rs.15. Taking the derivative of the supply function with respect to price gives us 10. Multiplying this by the ratio of price to quantity (15/(-100 + 10(15))) gives us a result of 3. Therefore, the elasticity is 3.

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88. An increase in the demand for computers and an increase in the number of sellers of I computers will

Explanation

An increase in the demand for computers indicates that more people are interested in buying computers. At the same time, an increase in the number of sellers of computers means that there are more options available in the market. As a result, both the demand and supply of computers are increasing. This will lead to an increase in the price of computers due to the higher demand, but it will also result in an increase in the number of computers bought as there are more sellers offering the product.

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89. An increase in the demand for cameras and an increase in the number of sellers of cameras will

Explanation

An increase in the demand for cameras indicates that more people are interested in buying cameras. This increase in demand, coupled with an increase in the number of sellers of cameras, will result in a higher price for cameras due to increased competition. However, it will also lead to an increase in the number of cameras bought as there are more options available for consumers to purchase from. Therefore, both the price and the number of cameras bought will increase.

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90. Contraction of supply is the result of :

Explanation

When the price of a good decreases, it becomes less profitable for producers to supply it. As a result, they may reduce their production or exit the market altogether, leading to a contraction of supply. This decrease in supply is a direct consequence of the decrease in the price of the good concern.

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91. Demand for a good will tend to be more inelastic if it exhibits which of the following characteristics?

Explanation

When a good is a small part of the consumer's income, it means that the consumer does not heavily rely on that particular good for their day-to-day needs. Therefore, even if the price of the good increases, the consumer is less likely to reduce their demand for it because they can still afford it without significant financial strain. This indicates that the demand for the good is more inelastic, as it is not easily affected by changes in price.

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92. An indifference curve slopes down towards right since more of one commodity and less of another result in :

Explanation

An indifference curve slopes down towards the right because it represents different combinations of two goods that provide the same level of satisfaction to the consumer. This means that as the consumer gives up some of one good, they can compensate by increasing their consumption of the other good in order to maintain the same level of satisfaction. Therefore, the consumer remains indifferent or equally satisfied along the curve.

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93. The goods that exhibit direct price-demand relationship are called:                                                                                 

Explanation

Giffen goods are goods that exhibit a direct price-demand relationship. This means that as the price of a Giffen good increases, the quantity demanded also increases. This is contrary to the law of demand, where an increase in price leads to a decrease in quantity demanded. Giffen goods are typically inferior goods that are essential for survival and have no close substitutes. As the price of these goods increases, consumers are forced to allocate a larger portion of their income towards them, resulting in an increase in quantity demanded.

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94. Suppose the price of movies seen at a theater rises from Rs. 120 per person to Rs. 200 per person. The theater manager observes that the rise in price causes attendance at a given movie to fall from 300 persons to 200 persons. What is the price elasticity of demand for movies?

Explanation

The price elasticity of demand measures the responsiveness of quantity demanded to a change in price. In this case, the price of movies increased from Rs. 120 to Rs. 200, and as a result, attendance at a given movie decreased from 300 to 200 persons. The price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price. In this scenario, the percentage change in quantity demanded is -33.33% (100 persons decrease out of 300) and the percentage change in price is 66.67% ((200-120)/120). Dividing the percentage change in quantity demanded by the percentage change in price gives us -0.5. However, since price elasticity of demand is typically reported as a positive number, the absolute value of -0.5 is 0.5. Therefore, the correct answer is 0.5.

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95. Supply is a__________________ concept.               

Explanation

Supply is a concept that refers to the continuous flow of goods or services into the market. It is not a static or fixed quantity, but rather a dynamic process that involves the production and distribution of goods over a period of time. This concept emphasizes the ongoing nature of supply and highlights the importance of understanding the factors that affect its flow.

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96. If the local pizzeria raises the price of a medium pizza from Rs.60 to Rs. 100 and quantity ] demanded falls from 700 pizzas a night to 100 pizzas a night, the price elasticity of demand

Explanation

The price elasticity of demand measures the responsiveness of quantity demanded to a change in price. In this case, the price of a medium pizza has increased by 40% (from Rs.60 to Rs.100) and the quantity demanded has decreased by 85.7% (from 700 pizzas to 100 pizzas). The formula for price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. Therefore, the price elasticity of demand in this scenario is 85.7% divided by 40%, which equals 3.0. This means that the quantity demanded is highly responsive to changes in price, indicating a relatively elastic demand.

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97. If price of air-cordifioner increases from Rs. 30,000 to Rs. 30,010 and resultant change in demand is negligible we use the measure of__________to measure elasticity.            

Explanation

When the price of the air-conditioner increases slightly from Rs. 30,000 to Rs. 30,010 and there is no significant change in demand, we can use the measure of point elasticity to measure elasticity. Point elasticity is a measure of the responsiveness of demand to a change in price at a specific point on the demand curve. In this case, the small increase in price does not cause a noticeable change in demand, indicating that the demand is relatively inelastic at that specific price point.

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98. The law of demand is :

Explanation

The law of demand states that, all else being equal, as the price of a good or service increases, the quantity demanded decreases, and vice versa. This is a qualitative statement because it describes the inverse relationship between price and quantity demanded without providing specific numerical values or measurements. It is a general observation about consumer behavior rather than a precise mathematical equation.

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99. Given the following four possibilities, which one results in an increase in total consumer expenditures?

Explanation

When demand is inelastic, it means that changes in price have a relatively small impact on the quantity demanded. In this case, when prices rise, consumers will still continue to purchase the same quantity of the product, resulting in an increase in total consumer expenditures. This is because the increase in price outweighs the decrease in quantity demanded, leading to a net increase in total spending.

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100.  The supply curve for perishable commodities is ___________.  

Explanation

The supply curve for perishable commodities is perfectly inelastic. This means that the quantity supplied does not respond to changes in price. Perishable commodities have a limited shelf life and cannot be stored or held for future use. Therefore, producers are unable to adjust their supply based on changes in price. Regardless of the price, the quantity supplied remains constant, resulting in a perfectly inelastic supply curve.

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