CA FOUNDATION – MCQ QUESTIONS

Chapter 2: Theory of Demand and Supply

1. Demand for a commodity refers to:

(a) Desire backed by ability to pay for the commodity.
(b) Need for the commodity and willingness to pay for it.
(c) The quantity demanded of that commodity at a certain price.
(d) The quantity of the commodity demanded at a certain price during any particular period of
time.
Answer: (d) The quantity of the commodity demanded at a certain price during any particular
period of time.

2. Demand is the ________.

(a) the desire for a commodity given its price and those of related commodities.
(b) the entire relationship between the quantity demanded and the price of a good other things
remaining the same.
(c) willingness to pay for a good if income is larger enough.
(d) ability to pay for a good.
Answer: (b) the entire relationship between the quantity demanded and the price of a good other
things remaining the same.

3. The quantity demanded is always expressed ________.

(a) Separately in isolation (b) Separately with quantity supplied
(c) At a given price (d) None of these
Answer: (c) At a given price

4. The quantity demanded is a ________.

(a) Flow (b) Stock (c) Single isolated purchase (d) Concept without reference to time.
Answer:(a) Flow

5. In economics, Effective Demand for a thing depends on:

(a) Desire (b) Means to purchase
(c) Willingness to use those means for that purchase (d) All of the above.
Answer: (d) All of the above.

6. All of the following are determinants of demand except:

(a) Tastes and preferences. (b) Quantity supplied.
(c) Income of the consumer. (d) Price of related goods.
Answer: (b) Quantity supplied.

7. Which of the following will affect the demand for non-durable goods?
(a) Disposable income (b) Price (c) Demography (d) All of the above
Answer: (d) All of the above

8. The term “Ceteris Paribus” refers to ________.

(a) Other things being equal (b) Other things also change
(c) Other things may change (d) None of the above
Answer:(a) Other things being equal

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9. Ceteris Paribus, the demand for a commodity is inversely related to its price. This happens
because of:
(a) Income Effect (b) Substitution Effect (c) Both (a) & (b) (d) None of above
Answer: (c) Both (a) & (b)

10. ________ is/are the types of Related Commodities.

(a) Complementary (b) Substitutes
(c) Complementary and Substitutes (d) Complementary or Substitutes
Answer: (c) Complementary and Substitutes

11. Which one of the following set of Commodities represents Complementary goods?
(a) Tea and Sugar (b) Automobile and Petrol
(c) Pen and ink (d) All of the above
Answer:(d) All of the above

12. ________ are those goods which are consumed together or simultaneously.
(a) Complementary (b) Substitutes (c) Similar (d) Un-related
Answer:(a) Complementary

13. When two commodities are complementary, a fall in the price of one (other things being
equal) will cause the demand for the other to ________.
(a) Fall (b) Rise (c) Remain constant (d) Fall substantially
Answer:(b) Rise

14. Two Commodities are called ________ when they satisfy the same want and can be used with
ease in place of one another.
(a) Substitutes (b) Complementary (c) Un-related (d) Opposite
Answer:(a) Substitutes

15. There is a ________ relation between the demand for a product and the price of its
substitutes.
(a) Direct (b) Positive (c) Indirect (d) Both (a)&(b)
Answer:(d) Both (a)&(b)

16. Highly priced goods are consumed by status seeking rich people to satisfy their need for
conspicuous consumption. This is called as ________.
(a) Veblen Effect (b) Snob Effect (c) Helen Effect (d) None of these
Answer: (a) Veblen Effect

17. ________ are the commodities for which the quantity demanded rises only up to a certain
level of in-come and decreases with an increase in money income beyond this level.
(a) Inferior Goods (b) Normal Goods (c) Consumption Goods (d) Durable Goods
Answer:(a) Inferior Goods

18. When goods are substitutes, a fall in the price of one (Ceteris Paribus) leads to in the quantity
demanded of its substitutes.
(a) Rise (b) Fall (c) Constant (d) No effect.
Answer:(b) Fall
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19. Which of the following will affect the demand for non-durable goods?
(a) Disposable income (b) Price (c) Demography (d) All of the above
Answer:(d) All of the above

19A. Which of the following pairs of goods is an example of substitutes?

(a) Tea and sugar. (b) Tea and coffee. (c) Pen and ink. (d) Shirt and trousers.
Answer:(b) Tea and coffee.

20. If the price of Pepsi decreases relative to the price of Coke and 7-UP, the demand for:
(a) Coke will decrease. (b) 7-Up will decrease.
(c) Coke and 7-UP will increase. (d) Coke and 7-Up will decrease.
Answer:(d) Coke and 7-Up will decrease.

21. Which of the following is an incorrect statement?

(a) When goods are substitutes, a fall in the price of one (ceteris paribus) leads to a fall in the
quantity demanded of its substitutes.
(b) When commodities are complements, a fall in the price of one (other things being equal) will
cause the demand of the other to rise.
(c) As the income of the consumer increases, the demand for the commodity increases always and
vice versa.
(d) When a commodity becomes fashionable people prefer to buy it and therefore its demand
increases.
Answer:(c) As the income of the consumer increases, the demand for the commodity increases
always and vice versa.

22. What will happen in the rice market if buyers are expecting higher rice prices in the near
future?
(a) The demand for rice will increase. (b) The demand for rice will de-crease.
(c) The demand for rice will be unaffected. (d) None of the above.
Answer: (a) The demand for rice will increase.

23. Conspicuous goods are also known as:

(a) Prestige goods. (b) Snob goods. (c) Veblen goods. (d) All of the above.
Answer: (d) All of the above.

24. A good which cannot be consumed more than once is known as ________.
(a) Durable good (b) Non-durable good (c) Producer good (d) None of the above
Answer: (b) Non-durable good

25. A relative price is ________.

(a) Price expressed in terms of money. (b) What you get paid for babysitting your cousin.
(c) The ratio of one money price to another. (d) Equal to a money price.
Answer: (c) The ratio of one money price to another.

26. The price of tomatoes increases and people buy tomato puree. You infer that tomato puree
and tomatoes are ________.
(a) Normal goods. (b) Complements. (c) Substitutes. (d) Inferior goods.
Answer:(c) Substitutes.

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27. Chicken and fish are substitutes. If the price of chicken increases, the demand for fish will
________.
(a) Increase or decrease but the de-mand curve for chicken will not change.
(b) Increase and the demand curve for fish will shift rightwards.
(c) Not change but there will be a movement along the demand curve for fish.
(d) Decrease and the demand curve for fish will shift leftwards.
Answer:(b) Increase and the demand curve for fish will shift rightwards.

28. Potato chips and popcorn are sub-stitutes. A rise in the price of potato chips will ________ the
demand for popcorn and the quantity of popcorn will ________.
(a) Increase; increase. (b) Increase; decrease.
(c) Decrease; decrease. (d) Decrease; increase.
Answer:(a) Increase; increase.

29. “High priced goods consumed by status seeking rich people to satisfy their need for
conspicuous goods” is:
(a) Veblen effect (b) Bandwagon effect (c) Snob effect (d) Demonstration effect
Answer:(a) Veblen effect

30. If the price of Orange Juice increases, the demand for Apple Juice will ________.
(a) Increase (b) Decrease (c) Remain the same. (d) Become negative.
Answer:(a) Increase

31. At higher prices people demand more of certain goods not lor their worth but for their
prestige value – This is called ________.
(a) Veblen effect. (b) Giffen paradox. (c) Speculative effect. (d) None of the above.
Answer:(a) Veblen effect.

32. With a fall in the price of a com-modity:

(a) Consumer’s real income increases.
(b) Consumer’s real income de-creases.
(c) There is no change in the real income of the consumer.
(d) None of the above.
Answer:(a) Consumer’s real income increases.

33. With an increase in the price of diamond, the quantity demanded also increases. This is
because it is a:
(a) Substitute good. (b) Complementary good. (c) Conspicuous good. (d) None of the above.
Answer:(c) Conspicuous good.

34. When the price of tea decreases, people reduces the consumption of coffee. Then the goods
are ________
(a) Independent Variable (b) Substitutes (c) Inferior goods (d) Normal goods
Answer:(b) Substitutes

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35. A Symbolic statement of a relationship between the dependent and the independent variables
is called as ________.
(a) Function (b) Sets (c) Equation (d) Variable
Answer:(a) Function

36. In a demand function, the demand for a product is the ________.

(a) Independent Variable (b) Explanatory Variable (c) Dependent variable (d) Complex variable
Answer:(c) Dependent variable

37. In a demand function, the determinants of demand like price, money income, tastes &
preferences, etc. may be regarded as
(a) Dependent Variables (b) Independent Variables (c) Related Variables (d) Complex variables
Answer:(b) Independent Variables

38. The Law of Demand, assuming other things to remain constant, estab-lishes the relationship
between:
(a) Income of the consumer and the quantity of a good demanded by him.
(b) Price of a good and the quantity demanded.
(c) Price of a good and the demand for its substitute.
(d) Quantity demanded of a good and the relative prices of its complementary goods.
Answer:(b) Price of a good and the quantity demanded.

39. When Price of a commodity increases what will be the affect on Quantity demanded?
(a) Increases (b) Decreases (c) No change (d) None of these
Answer:(b) Decreases

40. An increase in the demand for computers, other things remaining same, will:
(a) Increase the number of computers bought.
(b) Decrease the price but increase the number of computers bought.
(c) Increase the price of computers.
(d) Increase the price and number of computers bought.
Answer:(d) Increase the price and number of computers bought.

41. In case of Normal goods, Rise in price leads to ________?

(a) Fall in demand (c) No Change
(b) Rise in demand (d) Initially rise then ultimately fall
Answer:(a) Fall in demand

42. A decrease in the demand for cameras, other things remaining the same will.
(a) Increase the number of cameras bought.
(b) Decrease the price but increase the number of cameras bought.
(c) Increase the price of cameras.
(d) Decrease the price and decrease in the number of cameras bought.
Answer:(d) Decrease the price and decrease in the number of cameras bought.

43. Comforts lies between ________.

(a) Inferior goods and necessaries. (c) Necessaries and luxuries.
(b) Luxuries and inferior goods. (d) None of the above.

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Answer:(c) Necessaries and luxuries.

44. If price of the commodity increases, what will be the effect on Quantity demanded?
(a) Decreases (b) Increases (c) No change (d) Can’t say
Answer:(a) Decreases

45. Who has given the law of Demand?

(a) Alfred Marshall (b) Paul Samuelson (c) Robbins (d) J.B. Say
Answer:(a) Alfred Marshall

46. A Table which represents the different prices of a good and the corresponding quantity
demanded per unit of time is called as ________.
(a) Demand Curve (b) Demand Table (c) Demand Schedule (d) Demand Tabulation
Answer:(c) Demand Schedule

47. The Demand Schedule depicts ________ relationship between price and quantity demanded.
(a) Direct (b) Inverse (c) Adverse (d) None of these
Answer:(b) Inverse

48. ________ is a graphical presentation of the ________.

(a) Demand Curve, Demand Schedule (b) Demand Schedule, Demand Curve
(c) Demand Curve, Supply Schedule (d) Supply Curve, Demand Schedule
Answer:(a) Demand Curve, Demand Schedule

49. All but one of the following are assumed to remain the same while drawing an individual’s
demand curve for a commodity. Which one is it?
(a) The preference of the individual. (b) His monetary income.
(c) Price of the commodity. (d) Price of related goods.
Answer:(c) Price of the commodity.

50. The demand curve has a ________ Slope.

(a) Positive (b) Negative (c) Circular (d) No
Answer:(b) Negative

51. The ________ sloping Demand Curve is in accordance with the law of demand which describes
an price demand relationship.
(a) Upward, inverse (b) Downward, Inverse (c) Upward, direct (d) Download, direct
Answer:(b) Downward, Inverse

52. The sum of individual demands for a product at a price per unit of time is called as ________.
(a) Firm’s Demand (c) Goods available in market
(b) Market Demand (d) Goods to be sold in market.
Answer:(b) Market Demand

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53. The table which represents the sum of various quantities demanded by different consumers in
the market is called as ________.
(a) Demand Schedule (c) Market Demand Schedule
(b) Individual Demand Schedule (d) Market Demand Curve.
Answer:(c) Market Demand Schedule

54. The market Demand Schedule indicates ________ relationship between price and quantity
demanded of a commodity.
(a) Direct (b) Inverse (c) Circular (d) No
Answer:(b) Inverse

55. If we plot the market demand schedule on a graph, we get ________.

(a) Demand Chart (c) Demand Curve
(b) Market Demand Chart (d) Market Demand Curve
Answer:(d) Market Demand Curve

56. The lateral summation of individual demand Curves is regarded as ________.

(a) Economy Demand Curve (c) Product Demand Curve
(b) Market Demand Curve (d) Marginal Demand Curve
Answer:(b) Market Demand Curve

57. According to ________, the consumer has diminishing utility for each additional unit of a
commodity and therefore, he will be willing to pay only less for each additional unit.
(a) Marshall (b) Robbins (c) Samuelson (d) None of these
Answer:(a) Marshall

58. A Consumer maximizes his satisfaction when the Marginal utility of the commodity is
________ its price.
(a) Equal to (b) Less than (c) More than (d) Less than or equal to
Answer:(a) Equal to

59. The operations of diminishing marginal utility and the act of the Consumer to equalize the
utility of the commodity with its price result in a ________ demand curve.
(a) Downward Sloping (b) Upward Sloping (c) Straight line (d) Hyperbola upward
Answer:(a) Downward Sloping

60. ________ has/have explained the law of demand in terms of Substitu-tion Effect and Income
Effect.
(a) Marshall (b) Hicks (c) Allen (d) Both (b) & (c)
Answer:(d) Both (b) & (c)

61. As a result of fall in the price of a commodity, consumer’s real income or purchasing power
increases. This increase in the real income induces him to buy more of that commodity. This is
technically termed as:
(a) Price Effect (b) Substitution Effect (c) Income Effect (d) Both (b) & (c)
Answer:(c) Income Effect

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62. Which one of the following is not the rationale of the law of Demand?
(a) Law of Diminishing Marginal Utility (c) Arrival of New Customers.
(b) Price Effect (d) Change of Taste & Performances.
Answer:(d) Change of Taste & Performances.

63. Certain commodities have multiple uses. These different uses of a commodity make the
demand curve ________ reacting to changes in price.
(a) Slope downwards (c) Straight Line
(b) Slope Upwards (d) Both (a) & (b)
Answer:(a) Slope downwards

64. When total demand for a commodity whose price has fallen increases, it is due to:
(a) Income effect. (c) Complementary effect.
(b) Substitution effect. (d) Price effect.
Answer:(d) Price effect.

65. Which one of the following may be Considered as a rationale of the law of demand?
(a) Price Effect (c) Returns to Scale
(b) Giffen Goods (d) None of these
Answer:(a) Price Effect

66. In which of the following cases, the law of demand holds true?
(a) Normal Goods (c) Speculative Goods
(b) Giffen Goods (d) Necessary Goods
Answer:(a) Normal Goods

67. Higher the price of diamonds, higher is the prestige value attached to them and hence higher
is the demand for them. These goods are called as ________.
(a) Conspicuous goods (c) Normal goods
(b) Giffen goods (d) None of these
Answer:(a) Conspicuous goods

68. Which one of the following is an exception to the law of demand?

(a) Future expectations about prices (c) Speculative Goods
(b) Demand for necessaries (d) All of these
Answer:(d) All of these

69. For what type of goods does de-mand fall with a rise in income levels of households?
(a) Inferior goods (b) Substitutes (c) Luxuries (d) Necessities
Answer:(a) Inferior goods

70. In case of inferior goods, with rise of income of consumes, demand of goodwill?
(a) Increases (b) Decreases (c) No change (d) None of these
Answer:(b) Decreases

71. In the case of a Giffen good, the demand curve will be:
(a) Horizontal. (b) Downward-sloping to the right.
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(c) Vertical. (d) Upward-sloping to the right.
Answer:(d) Upward-sloping to the right.

72. In case ________, there is an inverse relationship between income and demand for a product.
(a) Substitute goods (b) Complementary goods
(c) Giffen Goods (d) None of the above
Answer:(c) Giffen Goods

73. An example of a good that exhibit direct price-demand relationship is ________.

(a) Giffen goods. (b) Complementary goods.
(c) Substitute goods. (d) None of the above.
Answer:(a) Giffen goods.

74. In Economics, when demand for a commodity increases with a fall in its price it is known as:
(a) Contraction of demand. (c) No change in demand.
(b) Expansion of demand. (d) None of the above.
Answer:(b) Expansion of demand.

75. When, as a result of increase in price, the quantity demanded decreases, it is called as _____.
(a) Expansion of Demand (c) Both (a) & (b)
(b) Increase in demand (d) None of these
Answer:(a) Expansion of Demand

76. The change in demand will be regarded as expansion of demand, if the increase in quantity
demanded is due to ______.
(a) Price of Related Goods (c) Change in income
(b) Price of goods (d) Change in Taste & Preferences.
Answer:(b) Price of goods

77. ________ refers to a change along a curve i.e. movement from one point to another on the
same curve.
(a) Expansion/Contraction of De-mand (c) Shift of Demand Curve
(b) Increase/Decrease in Demand (d) None of these.
Answer:(a) Expansion/Contraction of De-mand

78. Movement along the demand curve may be due to ________.

(a) Expansion of Demand (c) Increase/Decrease in Demand
(b) Contraction of Demand (d) Both (a) & (b)
Answer:(d) Both (a) & (b)

79. Contraction of demand is the result of:

(a) Decrease in the number of con-sumers. (c) Increase in the prices of other goods.
(b) Increase in the price of the good (d) Decrease in the income of purchasers.
concerned.
Answer:(b) Increase in the price of the good concerned.

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

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(a) An increase in demand. (c) A change in quantity demanded.
(b) A decrease in demand. (d) A change in demand.
Answer:(c) A change in quantity demanded.

81. ________ the demand curve in¬dicates that there is a change in demand at each possible price
because one or more other factors, such as income, tastes or the price of some other goods, etc.
have changed.
(a) A Shift of (c) No movement in
(b) A movement along (d) None of these
Answer:(a) A Shift of

82. When more quantities are demanded at the same price due to reasons other than price of the
commodity, there will be ________ in the demand Curve:
(a) Rightward shift (c) No shift
(b) Leftward shift (d) Any of (a) & (b)
Answer:(a) Rightward shift

83. An Increase in demand can result from:

(a) A decline in the market price (c) A reduction in the price of sub-stitutes
(b) An increase in income (d) An increase in the price of comple¬ments
Answer:(b) An increase in income

84. Suppose the price of Pepsi in-creases, we will expect the demand curve of Coca Cola to:
(a) Shift towards left since these are substitutes.
(b) Shift towards right since these are substitutes.
(c) Remain at the same level.
(d) None of the above.
Answer:(b) Shift towards right since these are substitutes.

85. A leftward shift in the demand curve may be due to :

(a) Fall in income (c) Decrease in Population
(b) Fall in the Price of Substitute (d) Any of the above
Answer:(d) Any of the above

86. The movement upwards or downwards on the same demand curve re-sulting from a change in
the price of the commodity is called as ________.
(a) Change in demand (c) Shifting of demand Curve
(b) Change in quantity demanded (d) Increase in demand
Answer:(b) Change in quantity demanded

87. Which of the following may be a reason behind rightward shift of the demand curve?
(a) Rise in price of substitute (c) Rise of price of same commodity
(b) Fall in price of substitute (d) Fall in price of same commodity
Answer:(a) Rise in price of substitute

88. Elasticity of demand is the percent-age change in ________ divided by the percentage change
in on which demand depends.

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(a) Quantity demanded, one of the variables (c) Quantity supplied, all the valuables
(b) Quantity demanded, all the valuables (d) Quantity supplied, one of the variables
Answer:(a) Quantity demanded, one of the variables

89. The price of a commodity decreases from ₹ 6 per unit to ₹ 4 Per unit and quantity demanded
of the goods in¬creased from 10 units to 15 units. The Co-efficient of Price Elasticity will be
________.
(a) 3 (b) 2 (c) 1 (d) 4
Answer:(a) 3

90. 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:
(a) Equal to one. (c) Smaller than one.
(b) Greater than one. (d) Zero.
Answer:(c) Smaller than one.

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

(a) The percentage change in quantity demanded in less than the percentage change in price.
(b) The percentage change in quantity demanded is greater than the percentage change in price.
(c) Demand is inelastic.
(d) The consumer is operating along a linear demand curve at a point at which the price is very low
and the quantity demanded is very high.
Answer:(b) The percentage change in quantity demanded is greater than the percentage change in
price.

92. An increase in price will result in an increase in total revenue if:

(a) The percentage change in quantity demanded is less than the percentage change in price.
(b) The percentage change in quantity demanded is greater than the percentage change in price.
(c) Demand is elastic.
(d) The consumer is operating along a linear demand curve at a point at which the price is very
high and the quantity demanded is very low.
Answer:(a) The percentage change in quantity demanded is less than the percentage change in
price.

93. If price decreases from ₹ 80 to ₹ 60 and elasticity of demand is 1.25 then ________.
(a) Demand increase by 25% (c) Remains constant
(b) Demand decrease by 25% (d) None of the above
Answer:(d) None of the above

94. Which of the following statements about price elasticity of demand is correct?
(a) Price elasticity of demand is a measure of how much the quantity demanded of a good
responds to a change in the price of that good.
(b) Price elasticity of demand is computed as the percentage change in quantity demanded
divided by the percentage change in price.
(c) Price elasticity of demand in the long run would be different from that of the short run.
(d) All the above.
Answer:(d) All the above.

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95. In the case of a straight line demand curve meeting the two axes, the price-elasticity of
demand at the mid-point of the line would be:
(a) 0 (b) 1 (c) 1.5 (d) 2
Answer:(b) 1

96. The Concept of point elasticity is used for measuring price elasticity where the change in price
is ________.
(a) Finite (b) Limited (c) Infinite small (d) None of the above.
Answer:(c) Infinite small

97.

(a) Elasticity at point A = ∞, at B = > 1, at C = 1, at D = < 1 and E = 0

(b) Elasticity at A = 0, at B = < 1, at C = 1, at D = > 1 and E = ∞
(c) Elasticity at A = 0, at B > 1, at C = 1, at D = < 1 and at E = 0
(d) None of these
Answer:(a) Elasticity at point A = ∞, at B = > 1, at C = 1, at D = < 1 and E = 0

98. The price elasticity of demand at the midpoint of the straight line demand curve under point
method is ________.
(a) 0 (b) 1 (c) > 1 (d) < 1
Answer:(b) 1

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

(a) The bookstore is considering doubling the price of notebooks.
(b) A restaurant is considering lowering the price of its most expensive dishes by 50 per cent.
(c) An auto producer is interested in determining the response of consumers to the price of cars
being lowered by ₹ 100.
(d) None of the above.
Answer:(c) An auto producer is interested in determining the response of consumers to the price
of cars being lowered by ₹ 100.

100. The price of a commodity decreases from ₹ 6 to ₹ 4 and the quantity de-manded of the good
increases from 10 units to 15 units, and the coefficient of price elasticity. (Use Point Elasticity
Method)
(a) 1.5 (b) 2.5 (c) – 1.5 (d) 0.5
Answer:(c) – 1.5

101. If the price of air-conditioner increases from ₹ 30,000 to ₹ 30,010 and resultant change in
demand is negligible, we use the measure of ________ to measure elasticity.
(a) Point elasticity. (c) Perfect inelasticity.
(b) Perfect elasticity. (d) Price elasticity.

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Answer:(a) Point elasticity.

102. Elasticity between two points:

(a) Point elasticity (c) Cross elasticity
(b) Arc elasticity (d) None
Answer:(b) Arc elasticity

103. Suppose the price of movies seen at a theatre rises from ₹ 120 per person to ₹ 200 per
person. The the atre 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? (Use
Arc Elasticity Method)
(a) 5 (b) 8 (c) 1.0 (d) 1.2
Answer:(b) 8

104. Suppose a department store has a sale on its silverware. If the price of a plate-setting is
reduced from ₹ 300 to ₹ 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? (Use Arc Elasticity
Method)
(a) .8 (b) 1.0 (c) 1.25 (d) 1.50
Answer:(c) 1.25

105. If the local pizzeria raises the price of a medium pizza from ₹ 60 to ₹ 100 and quantity
demanded falls from 700 pizzas a night to 100 pizzas a night, the price elasticity of demand for
pizzas is: (Use Arc Elasticity Method)
(a) .67 (b) 1.5 (c) 2.0 (d) 3.0
Answer:(d) 3.0

106. If regardless of changes in its price, the quantity demanded of a good remains unchanged,
then the demand curve for the good will be:
(a) Horizontal. (b) Vertical. (c) Positively sloped. (d) Negatively sloped.
Answer:(b) Vertical.

107. 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:
(a) Elastic. (b) Inelastic. (c) Unitarily elastic. (d) Perfectly elastic.
Answer:(a) Elastic.

108. If electricity demand is inelastic, and electricity charges increase, which of the following is
likely to occur?
(a) Quantity demanded will fall by a relatively large amount.
(b) Quantity demanded will fall by a relatively small amount.
(c) Quantity demanded will rise in the short run, but fall in the long run.
(d) Quantity demanded will fall in the short run, but rise in the long run.
Answer:(b) Quantity demanded will fall by a relatively small amount.

13
109. 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:
(a) Large fall in quantity demanded. (c) Small fall in quantity demanded.
(b) Large fall in demand. (d) Small fall in demand.
Answer:(a) Large fall in quantity demanded.

110. Demand for a good will tend to be more elastic if it exhibits which of the following
characteristics?
(a) It represents a small part of the consumer’s income.
(b) The good has many substitutes available.
(c) It is a necessity (as opposed to a luxury).
(d) There is little time for the consumer to adjust to the price change.
Answer:(b) The good has many substitutes available.

111. Demand for a good will tend to be more inelastic if it exhibits which of the following
characteristics?
(a) The good has many substitutes.
(b) The good is a luxury (as opposed to a necessity).
(c) The good is a small part of the consumer’s income.
(d) There is a great deal of time for the consumer to adjust to the change in prices.
Answer:(c) The good is a small part of the consumer’s income.

112. Using total outlay method,

(a) We cannot find exact co-efficient of Price Elasticity.
(b) We can find exact co-efficient of Price Elasticity.
(c) We cannot determine whether the good is elastic or inelastic.
(d) None of the above.
Answer:(a) We cannot find exact co-efficient of Price Elasticity.

113. When, as a result of the change in price of a good, the total expenditure on the goods or total
revenue received from those good remains the same, the price elasticity for the good is equal to
________.
(a) Zero (b) Unity (c) More than one (d) Less than one
Answer:(b) Unity

114. Which one of the following is / are the determinants of price elasticity?
(a) Availability of substitutes. (c) Price range
(b) Time period (d) All of the above.
Answer:(d) All of the above.

115. The demand for goods like com-mon salt, matches, buttons, etc. tends to be ________
because a household spends only a fraction of their income on each of them.
(a)Elastic (b) Inelastic (c) Highly inelastic (d) Highly elastic.
Answer:(c) Highly inelastic

116. The price of a good has decreased from f 100 to ₹ 60 per unit. If the price elasticity of
demand for it is 1.5 and the original quantity demanded is 30 units, the new quantity demanded

14
will be ________.
(a) 18 Units (b) 30 Units (c) 48 Units (d) 60 Units
Answer:(c) 48 Units

117. If there is no change at all in the quantity demanded, when price changes, the elasticity will
be ________.
(a) Zero (b) Unitary (c) Greater than one (d) Less than one
Answer: (a) Zero

118. If elasticity is ________, then the quantity demanded does not respond at all to a price
change.
(a) Zero (b) One (c) Greater than one (d) Less than one
Answer:(a) Zero

119. The demand is said to be ________ when the percentage change in quantity demanded is
less than the percentage change in price.
(a) Elastic (b) Inelastic (c) Perfectly elastic (d) None of the above
Answer:(b) Inelastic

120. In case of wheat & Common salt, the nature of Price elasticity of demand is ________.
(a) Elastic (b) Inelastic (c) Perfectly Elastic (d) None of the above.
Answer:(b) Inelastic

121. If a Consumer is a habitual consumer of a commodity, no mat¬ter how much its price
changes, the demand for the Commodity will be ________.
(a) Elastic (b) Inelastic (c) Perfectly Elastic (d) Unitary
Answer:(b) Inelastic

122. The greater the proportion of in-come spent on a commodity, generally the ________ will be
its elasticity of demand and vice versa.
(a) Greater (b) Lesser (c) Either (a) or (b) (d) None of these.
Answer:(a) Greater

123. If the demand for a good is inelas-tic, an increase in its price will cause the total expenditure
of the consumers of the good to:
(a) Remain the same. (b) Increase. (c) Decrease. (d) Any of these.

Answer:(b) Increase.

124. Given the following four possibili-ties, which one results in an increase in total consumer
expenditure₹
(a) Demand is unitary elastic and price falls. (c) Demand is inelastic and price falls.
(b) Demand is elastic and price rises. (d) Demand is inelastic and prices rises.

Answer:(d) Demand is inelastic and prices rises.

15
125. Suppose a consumer’s income increases from ₹ 30,000 to ₹ 36,000. As a result, the consumer
increases her purchases of compact discs (CDs) from 25 CDs to 30 CDs. What is the con-sumer’s
income elasticity of demand for CDs? (Use Arc Elasticity Method)
(a) 0.5 (b) 1.0 (c) 1.5 (d) 2.0
Answer:(b) 1.0

126. The quantity purchased remains constant irrespective of the change in income. This is known
as ________.
(a) Negative income elasticity of demand. (c) Zero income elasticity of demand.
(b) Income elasticity of demand less than (d) Income elasticity of demand is greater
one. than one.
Answer:(c) Zero income elasticity of demand.

127. When income increases the money spent on necessaries of life may not increase in the same
proportion. This means:
(a) Income elasticity of demand is zero.
(b) Income elasticity of demand is one.
(c) Income elasticity of demand is greater than one.
(d) Income elasticity of demand is less than one.
Answer:(d) Income elasticity of demand is less than one.

128. As income increases, the consumer will go in for superior goods and consequently the
demand for inferior goods will fall. This means:
(a) Income elasticity of demand less than one.
(b) Negative income elasticity of demand.
(c) Zero income elasticity of demand.
(d) Unitary income elasticity of de-mand.
Answer:(b) Negative income elasticity of demand.

129. Income elasticity of demand is calculated by dividing percentage change in ________ by the
percentage change in ________.
(a) Income, Demand (c) Income, Price
(b) Demand, Income (d) Demand, Price.
Answer:(b) Demand, Income

130. Which one of the following is the preposition on the relationship between income elasticity
of demand and the proportion of income spent on it?
(a) If the proportion of income on a good remains the same as income increase, then income
elasticity for the good is equal to one.
(b) If the proportion of Income spent on good increases as income increases, then the income
elasticity for the goods is greater than one.
(c) If the proportion of income spent on a good decreases as income rises, the income elasticity for
the good is less than one.
(d) All of the above
Answer:(d) All of the above

16
131. For all ________ goods, the income elasticity is positive.
(a) Normal (b) Interior (c) Luxury (d) All of the above
Answer:(a) Normal

132. For all ________ goods, the income elasticity is greater than one.
(a) Normal (b) Interior (c) Luxury (d) All of the above.
Answer:(c) Luxury

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

(a) Positive and less than 1. (c) Positive and greater than 1.
(b) Negative but greater than 1. (d) Zero.
Answer:(c) Positive and greater than 1.

134. If, as people’s income increases, the quantity demanded of a good de-creases, the good is
called ________.
(a) A substitute. (c) An inferior good.
(b) A normal good. (d) A complement.
Answer:(c) An inferior good.

135. The income elasticity of tomatoes is 0.25, it means tomatoes are:

(a) Inferior goods. (c) Normal goods.
(b) Luxury goods. (d) Can’t say.
Answer:(c) Normal goods.

136. Suppose the income elasticity of education in private school in India is 1.6. What does this
indicate:
(a) Private school education is a luxury.
(b) Private school education is a necessity.
(c) Private school education is an inferior commodity.
(d) We should have more private schools.
Answer:(a) Private school education is a luxury.

137. Suppose potatoes have (-).0.4 as income elasticity. We can say from the data given that:
(a) Potatoes are inferior goods.
(b) Potatoes are superior goods.
(c) Potatoes are necessities.
(d) There is a need to increase the income of consumers so that they can purchase potatoes.
Answer:(a) Potatoes are inferior goods.

138. If the income elasticity is less than one, it shows that the goods is either relatively least
important in the eyes of consumer or it is a ________.
(a) Inferior (b) Luxury (c) Necessity (d) None of these
Answer:(c) Necessity

139. The income elasticity of demand of commodity “Buttons” is ________.

(a) Greater than one (b) Lest than one (c) Zero (d) One
Answer:(c) Zero
17
140. ‘Bajra’ is an inferior commodity in the eyes of the household. Its income elasticity of demand
will be ________.
(a) More than 1 (b) Equal to 1 (c) Less than 1, but greater than 0 (d) Negative
Answer:(d) Negative

141. Cross elasticity of demand refers to the quantities of commodity which will be demanded in
response to ________, keeping other things remaining the same.
(a) Income of consumer (c) Price of Related commodity
(b) Price of same commodity (d) Both (b) & L(C)

Answer:(c) Price of Related commodity

142. In case of substitute commodities, the cross demand curve slopes ________.
(a) Upwards (b) Downwards (c) Circular (d) Parabolic
Answer:(a) Upwards

143. There is a relationship between price of a commodity and the demand for its complementary
goods (other things remaining the same).
(a) Inverse (b) Positive (c) Direct (d) Any of (b) & (c)
Answer:(a) Inverse

144. Cross elasticity of perfect sub-stitutes is:

(a) Zero (b) Negative (c) One (d) Infinity
Answer:(d) Infinity

145. The cross elasticity between Bread and DVDs is:

(a) Positive. (b) Negative. (c) Zero. (d) One.
Answer:(c) Zero.

146. The cross elasticity between personal computers and software’s is:
(a) Positive. (b) Negative. (c) zero. (d) One.
Answer:(b) Negative.

147. If two goods are perfect substitutes for each other, the cross elasticity between them is
________.
(a) One (b) More than one (c) Less than one (d) Infinite
Answer:(d) Infinite

148. When the numerical value of cross elasticity between two goods is very high, it means:
(a) The goods are perfect complements and therefore have to be used together.
(b) The goods are perfect substitutes and can be used with ease in place of one another.
(c) There is a high degree of substitutability between the two goods.
(d) The goods are neutral and there-fore cannot be considered as substitutes.
Answer:(c) There is a high degree of substitutability between the two goods.

18
149. If the goods are substituted (like tea and coffee), the cross elasticity between them is
________.
(a) Positive (b) Negative (c) Zero (d) Infinity
Answer:(a) Positive

150. If the quantity demanded of mutton increases by 5% when the price of chicken increases by
20%, the cross¬price elasticity of demand between mutton and chicken is:
(a) – 0.25 (b) 0.25 (c) – 4 (d) 4
Answer:(b) 0.25

151. In case of Complementary Goods, a rise in the price of one leads to a fall in the quantity
demanded of the other. The cross elasticity of demand between these will be ________.
(a) Positive (b) Negative (c) Zero (d) Infinity
Answer:(b) Negative

152. When the numerical value of cross elasticity between two goods is very high, it means
________.
(a) The goods are perfect comple-ments and therefore have to be used together.
(b) The goods are perfect substitutes and can be used with ease in place of one another.
(c) There is a high degree of substi-tutability between the two goods.
(d) The goods are neutral and there-fore cannot be considered as substitutes.
Answer:(c) There is a high degree of substitutability between the two goods.

153. The price of 1 kg. of tea is ₹ 30. At this price, 5 kg of tea is demanded. If the price of coffee
rises from ₹ 25 to ₹ 35 per kg, the quantity demanded of tea rises from 5 kg. to 8 kg. The cross
price elastic of tea is ________.
(a) 1 (b) 0.5 (c) 1.5 (d) 0
Answer:(c) 1.5

154. The Cross elasticity is – 1.2. It represents that the commodities are: ________ in nature.
(a) Complementary (b) Substituted (c) Inferior (d) Giffen
Answer:(a) Complementary

155. Advertisement elasticity of sales or promotional elasticity of demand is the responsive of a

good demanded to changes in ________.
(a) Price of Commodity (c) Firms spending on advertising
(b) Per Unit advertisement budget (d) Firms spending on distribution.
Answer:(c) Firms spending on advertising

156. Usually, higher the value of advertising elasticity, greater will be the responsiveness of
demand to change in advertisement. Therefore, usually advertising elasticity of demand is
typically ________.
(a) Positive (b) Unitary (c) Negative (d) Zero
Answer:(a) Positive

19
157. Advertisement elasticity of demand values between ________ and ________.
(a) One, infinity (b) Zero, infinity (c) Zero, one (d) (-) Infinity to (+) Infinity.
Answer:(b) Zero, infinity

158. What will be the advertisement elasticity?

% Change in Demand = 30%
% change in Price = Nil
% change in advertisement Expenditure = 25%
(a) 1.2 (b) 0.83 (c) 1 (d) 25
Answer:(a) 1.2

159. When the demand changes at a higher rate than change in advertisement expenditure, the
advertisement elasticity will be ________.
(a) Zero (b) One (c) More than one (d) Less than one
Answer:(d) Less than one

160. The zero advertisement Elasticity represents :

(a) Demand responds proportionately (c) Demand does not respond at all.
(b) Demand does not respond (d) None of the above.
proportionately
Answer:(c) Demand does not respond at all.

161. When the change in demand is less than proportionate change in advertisement expenditure,
the advertisement elasticity (Ea) will be equal to ________.
(a) Ea = 0 (b) Ea > 0 (c) Ea < 1 (d) Ea > 0 but < 1.
Answer:(d) Ea > 0 but < 1.

162. Which of the following statements is correct?

(a) With the help of statistical tools, the demand can be forecasted accurately.
(b) The more the number of sub-stitutes of a commodity, more elastic is the demand.
(c) Demand for butter is perfectly elastic.
(d) Gold jewellery will have negative income elasticity.
Answer:(b) The more the number of sub-stitutes of a commodity, more elastic is the demand.

163. Method of demand forecasting does not include?

(a) Mathematical method (c) Expert opinion method
(b) Barometric method (d) Statistical method
Answer:(a) Mathematical method

164. Forecasting of demand is the Art and Science of predicting?

(a) Actual demand of a product at same (c) Total demand in future
future date (d) None of these
(b) Probable demand in future
Answer:(b) Probable demand in future

20
165. Forecasting refers to knowing or measuring the status or nature of an event or variable
________ it occurs.
(a) Before (b) When (c) After (d) Both (b) & (c)
Answer:(a) Before

166. The demand for cement in India is forecasted. It refers to ________.

(a) Micro level forecasting (c) Industry level forecasting
(b) Long Term forecasting (d) Firm level forecasting.
Answer:(c) Industry level forecasting

167. ________ demand forecasting is generally useful in tactical decisions.

(a) Short-term (b) Long-Term (c) Very Long Period (d) Both (a) & (b)
Answer:(a) Short-term

168. The demand for a commodity that arises because of the demand for same other commodity
(prevent product) is called as ________.
(a) Demand (b) Direct Demand (c) Derived Demand (d) Implied Demand
Answer:(c) Derived Demand

169. If the demand for a product is independent of the demand for other goods, then it is called as
________.
(a) Derived Demand (b) Autonomous Demand (c) Industry Demand (d) Implied Demand.
Answer:(b) Autonomous Demand

170. Which of the following are consumer’s goods?

(a) Readymade clothes (b) Prepared Food (c) Residential Houses (d) All of the above.
Answer:(d) All of the above.

171. Identify Producer’s goods out of following :

(a) Plant and Equipment (c) Residential Houses
(b) Readymade clothes (d) All of the above
Answer:(a) Plant and Equipment

172. Which of the following factors affects demand for non-durable consumer goods₹
(a) Disposable Income (c) Demography
(b) Price (d) All of the above.
Answer:(d) All of the above.

173. In order to find out turning points, it is necessary to find out the general behaviour of the
economy. This method of forecasting is called as :
(a) Controlled Experiments (c) Statistical Method
(b) Barometric Method (d) None of these
Answer:(b) Barometric Method

21
174. ________ method of fore-casting includes the methods:
# Complete Enumerations
# Sample Survey
# End Use
(a) Collective opinion (c) Expert Opinion
(b) Survey of Buyer’s intentions (d) Barometric
Answer:(b) Survey of Buyer’s intentions

175. Under ________ method of demand forecasting, the future demand is estimated by
conducting market studies and experiments on consumer behaviour under actual, though
controlled, market conditions.
(a) Controlled Experiment method (c) Barometric Method
(b) Market Experiment Method (d) Both (a) & (b)
Answer:(d) Both (a) & (b)

176. Which one of the following is the statistical method of demand forecasting?
(a) Trend Projection Method (c) Regression Analysis
(b) Fitting Equation Method (d) All of the above.
Answer:(d) All of the above.

177. All ________ of human beings are called wants in Economics.

(a) Desires (b) Tastes (c) Motives (d) All of these
Answer:(d) All of these

178. Wants may arise due to ________ causes.

(a) Elementary (b) Psychological (c) Internal (d) Both (a) & (b)
Answer:(d) Both (a) & (b)

179. Which of the following is not the characteristic of wants of human beings?
(a) Wants are unlimited
(b) Wants are subjective & relative
(c) Wants are affected by income, taste, fashion, advertisements and social customs
(d) Wants do not vary with time, place & person.
Answer:(d) Wants do not vary with time, place & person.

180. Wants arise from multiple causes including ________.

(a) Natural instincts (c) Individual’s economic & social status
(b) Social obligations (d) All of the above
Answer:(d) All of the above.

181. ________ is the ________ by the Consumer and ________ is the actual satisfaction derived:
(a) Utility, anticipated satisfaction, (c) Desire, utility, satisfaction
satisfaction (d) None of these.
(b) Utility, actual satisfactory, desire
Answer:(a) Utility, anticipated satisfaction, satisfaction

22
182. ________ is the want satisfying power of a Commodity.
(a) Utility (b) Marginal Utility (c) Desire (d) Desired Utility
Answer:(a) Utility

183. Which of the following theories explains consumer behaviours?

(a) Marginal Utility Analysis (c) Returns to scale
(b) Indifference Curve (d) Both (a) & (b).
Answer:(d) Both (a) & (b).

184. Marginal Utility Analysis has been propounded by :

(a) Marshall (b) Hicks (c) Allen (d) Hicks & Allen
Answer:(a) Marshall

185. Alfred Marshall was a ________ economist.

(a) British (b) American (c) European (d) Asian
Answer:(a) British

186. ________ is the sum of marginal utilities derived from the con-sumption of different units.
(a) Marginal Utility (b) Average Utility (c) Total Utility (d) Incremental Marginal Utility
Answer:(c) Total Utility

187. ________ is the additional made to total utility by the consumption of an additional unit of a
commodity.
(a) Marginal Utility (b) Average Utility (c) Total Utility (d) Incremental Marginal Utility
Answer:(a) Marginal Utility

188. When economists speak of the utility of a certain good, they are re-ferring to:
(a) The demand for the good.
(b) The usefulness of the good in consumption.
(c) The expected satisfaction derived from consuming the good.
(d) The rate at which consumers are willing to exchange one good for another.
Answer:(c) The expected satisfaction derived from consuming the good.

189. The aim of the consumer in al-locating his income is to ________.

(a) Maximize his total utility.
(b) Maximize his marginal utility.
(c) To buy the goods he wants most whatever the price.
(d) To buy the goods which he expects to be short in supply.
Answer:(a) Maximize his total utility.

190. Additional made to total utility refers to?

(a) Total utility (b) Average utility (c) Marginal utility (d) All of the above
Answer:(c) Marginal utility

23
191. Which Equation is correct –
(a) MUXMUy=PxPy (b) MUXMUy>PxPy (c) MUXMUy<PxPy (d) MUXMUy≠PxPy
Answer:(a) MUXMUy=PxPy

192. From the following data given below answer questions 18 and 19 –

Units TU MU

1 200

2 – 180

3 480 –
Total utility derived from 2nd unit?
(a) 380 (b) 20 (c) 100 (d) 280
Answer:(a) 380

193. Marginal utility of 3rd unit is?

(a) 200
(b) 280
(c) 100
(d) 50
Answer:(b) 280

194. The Consumer is in equilibrium when the following condition is satisfied:

(a) Budget line is tangent to the Ic curve (c) Both (a) and (b)
(b) MUxPx=MUyPy=MU2Pz (d) None of the above
Answer:(c) Both (a) and (b)

195. Cardinal approach is related to:

(a) Indifference curve (c) Law of diminishing returns
(b) Equi marginal utility (d) None of these
Answer:(b) Equi marginal utility

196. Which economist said that money is the measuring rod of utility?
(a) A.C. Pigou (b) Marshall (c) Adam Smith (d) Robbins
Answer:(b) Marshall

197. Which of the following relation is true with MU?

(a) When MU is positive, Total utility rises at a diminishing rate
(b) When marginal utility is zero, total utility is maximum
(c) When marginal utility is negative, total utility is diminishing
(d) All of the above
Answer:(d) All of the above

24
198. Total utility is maximum when:
(a) Marginal utility is zero. (c) Marginal utility is negative.
(b) Marginal utility is at its highest point. (d) None of the above.
Answer:(a) Marginal utility is zero.

199. The second glass of lemonade gives lesser satisfaction to a thirsty boy. This is a clear case of:
(a) Law of demand. (c) Law of diminishing utility.
(b) Law of diminishing returns. (d) Law of supply.
Answer:(c) Law of diminishing utility.

200. When TUn-1 is deducted from TUn, the resultant is ________.

(a) Marginal Utility (c) Total Utility
(b) Average Utility (d) Incremental Marginal Utility
Answer:(a) Marginal Utility

201. Marginal Utility Analysis is ________ Concept.

(a) Cardinal (b) Ordinal (c) Sequential (d) None of these.
Answer:(a) Cardinal

202. Which of the following is not an assumption of Marginal Utility Analysis?

(a) Rationality
(b) Cardinal Measurability of Utility
(c) Hypothesis of independent utility
(d) Increasing Marginal Utility of Money.
Answer:(d) Increasing Marginal Utility of Money.

203. As per the hypothesis of ________Utility, the total utility which a person gets from the whole
collection of goods purchased by him is simply the sum total of the separate utilities of the goods.
(a) Dependent (b) Independent (c) Related (d) Affected
Answer:(b) Independent

204. According to neo-classical econo-mists, utility is a cardinal concept. It means:

(a) Utility is a measurable and quantifiable entity
(b) A psychological unit of measurement of utility is available called as ‘UTILS’
(c) Utilities from different units of the commodity can be added.
(d) All of the above.
Answer:(d) All of the above.

205. The Marginal Utility can be ________.

(a) Positive (b) Zero (c) Negative (d) Any of above
Answer:(d) Any of above

206. The concept of Consumer’s Surplus was propounded by ________.

(a) Alfred Marshall (b) Hicks & Allen (c) J.B. Say (d) None of these
Answer:(a) Alfred Marshall

25
207. If a Consumer gets more utility from a commodity, he would be willing to pay a higher price
and vice versa. This extra satisfaction which consumer gets from the purchase of goods is called as
________.
(a) Producer’s Supply (c) Extra Utility
(b) Consumer’s Surplus (d) Excess Marginal Utility
Answer:(b) Consumer’s Surplus

208. Which of the following statement is incorrect as regards Consumer’s Surplus?

(a) It can be measured in money (c) It is affected by a variability of substitutes
(b) It cannot be measured precisely (d) It is always infinite for necessaries.
Answer:(a) It can be measured in money

209. By consumer surplus, economists mean ________

(a) The area inside the budget line.
(b) The area between the average revenue and marginal revenue curves.
(c) The difference between the maxi¬mum amount a person is willing to pay for a good and its
market price.
(d) None of the above.
Answer:(c) The difference between the maxi¬mum amount a person is willing to pay for a good
and its market price.

210. In the diagram given below, the shaded portion represents.

(a) Price above which there is no demand for the commodity.

(b) Monopoly price of the commodity.
(c) Consumer surplus.
(d) None of the above.
Answer:(c) Consumer surplus.

211. Which of the following is/are the condition’s of theory of consumer surplus if price is same
for all the units he purchased?
(a) Consumer gains extra utility or surplus (c) Both
(b) Consumer surplus for the last commodity (d) None
is zero
Answer:(c) Both

212. The concept of consumer’s surplus is derived from:

(a) The law of diminishing marginal utility (c) The law of diminishing returns
(b) The law of equal-marginal utility (d) Engel’s law
Answer:(a) The law of diminishing marginal utility
26
213. In case of necessaries, consumes surplus is?
(a) Infinite (b) Zero (c) Equals to one (d) More than one
Answer:(a) Infinite

214. Consider the following:

The Consumer’s surplus in above diagram is ________.

(a) OQRP (b) RQD1 (c) DPR (d) ODD1
Answer:(c) DPR

215. The indifference curve analysis is based on ________ utility.

(a) Ordinal (b) Cardinal (c) Quantitative (d) Numeric
Answer:(a) Ordinal

216. Which one is not an assumption of the theory of demand based on analysis of indifference
curves?
(a) Given scale of preferences as between different combinations of two goods.
(b) Diminishing marginal rate of substitution.
(c) Constant marginal utility of money.
(d) Consumers would always prefer more of a particular good to less of it, other things remaining
the same.
Answer:(c) Constant marginal utility of money.

217. Which of the following is not the property of indifference curve?

(a) Slopes downwards to the right (c) Intersects each other
(b) Always convex to the origin (d) Will not touch either of the axes
Answer:(c) Intersects each other

218. Which of the following is not the property of indifference curve?

(a) IC is convex to the origin (c) Two IC can touch each other
(b) IC scopes downwards from left to right (d) IC cannot touch either of the axis
Answer:(c) Two IC can touch each other

219. An indifference curve slopes down towards right since more of one com-modity and less of
another result in:
(a) Same level of satisfaction. (c) Maximum satisfaction.
(b) Greater satisfaction. (d) Any of the above.

Answer:(a) Same level of satisfaction.

27
220. Which of the following is a prop-erty of an indifference curve?
(a) It is convex to the origin.
(b) The marginal rate of substitution is constant as you move along an indifference curve.
(c) Marginal utility is constant as you move along an indifference curve.
(d) Total utility is greatest where the 45 degree line cuts the indiffer-ence curve.
Answer:(a) It is convex to the origin.

221. An IC shows ________ MRS between the commodity?

(a) Increasing (b) Decreasing (c) Constant (d) Zero
Answer:(b) Decreasing

222. The figure below shows the budget constraint of a consumer with an income of ₹ 900 to
spend on two commodities, namely ice cream and chocolates.

The prices of these two commodities respectively are:

(a) ₹ 10 and ₹ 20 (b) ₹ 20 and ₹ 10 (c) ₹ 10 and ₹ 5 (d) Any of the above.
Answer:(b) ₹ 20 and ₹ 10

223. Indifference curve is L shaped then two goods will be:

(a) Perfect substitute goods (c) Perfect complementary goods
(b) Substitute goods (d) Complementary goods

Answer:(c) Perfect complementary goods

224. Which of the following statements is incorrect?

(a) An indifference curve must be downward-sloping to the right.
(b) Convexity of a curve implies that the slope of the curve diminishes as one moves from left to
right.
(c) The income elasticity for inferior goods to a consumer is positive.
(d) The total effect of a change in the price of a good on its quantity demanded is called the price
effect.
Answer:(c) The income elasticity for inferior goods to a consumer is positive.

225. A point below the budget line of a consumer ________.

(a) Represents a combination of goods which costs the whole of consumer’s income.
(b) Represents a combination of goods which costs less than the consumer’s income.
(c) Represents a combination of goods which is unattainable to the consumer given his/her money
income.
(d) Represents a combination of goods which costs more than the consumers’ income.
Answer:(b) Represents a combination of goods which costs less than the consumer’s income.

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226. ________ is a curve which represents all those combinations of two goods which give same
satisfaction to the consumer.
(a) Indifference Curve (c) Equal-Utility Curve
(b) Iso-Utility Curve (d) All of the above
Answer:(d) All of the above

227. ________ represents a collection of many indifference curves where each curve represents a
certain level of satisfaction.
(a) Indifference Group (c) Indifference Aggregate
(b) Indifference Map (d) Market Map

Answer:(b) Indifference Map

228. Consider the following:

In the above indifference map, which point gives highest satisfaction?

(a) A (b) B (c) C (d) Both (c) and (d)
Answer:(d) Both (c) and (d)

229. ________ is the rate at which a consumer is prepared to ex-change group X and Y.
(a) Marginal Rate of Substitution (c) Mathematical Rate of Substitution
(b) Average Rate of Substitution (d) None of the above
Answer:(a) Marginal Rate of Substitution

230. When MUA is divided by MUB, then it is the marginal rate of substitution of ________.
(a) A for B (c) A & B for other Product
(b) B for A (d) None of these

Answer:(a) A for B

231.When the consumer has more and more unit of food, he is prepared to give up less and less
units of clothing. It is due to ________.
(a) Falling MRS (c) Constant MRS
(b) Rising MRS (d) None of the above.

Answer: (a) Falling MRS

232. Which one of the following Statement is incorrect about Indifference Curve?
(a) Always Convex to the origin satisfaction.
(b) Never intersects each other (d) It may touch X axis but never Y axis.
(c) Higher Curve represents higher level of
Answer: (d) It may touch X axis but never Y axis.

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233. A higher indifference curve shows a higher level of satisfaction than a lower one. Therefore, a
consumer, in his attempt to maximize satisfaction will try to reach the ________ possible
indifference curve.
(a) Highest (b) Lowest (c) Any of (a) or (b) (d) None of these
Answer:(a) Highest

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

(a) Is above an indifference curve. (c) Is tangent to an indifference curve.
(b) Is below an indifference curve. (d) Cuts an indifference curve.
Answer:(c) Is tangent to an indifference curve.

235. The scope of the indifference curve shows consumer equilibrium at point where
MRS(xy) ________ PxPy (Price line).
(a) Less than (b) More than (c) Equal to (d) None of the above
Answer:(c) Equal to

236. The Slope of Indifference curve is ________.

(a) Marginal Rate of Substitution (c) Average Rate of Substitution
(b) Minimal Rate of Substitution (d) Total Rate of Substitution
Answer:(a) Marginal Rate of Substitution

237. The slope of the ‘Price line’ indicates the ratio between ________ of the two goods.
(a) Prices (c) Quantities Sold
(b) Quantities demanded (d) Marginal Utility
Answer:(a) Prices

238. The supply of a good refers to:

(a) Actual production of the good.
(b) Total existing stock of the good.
(c) Stock available for sale.
(d) Amount of the good offered for sale at a particular price per unit of time.
Answer:(d) Amount of the good offered for sale at a particular price per unit of time.

239. Supply is a ________ concept.

(a) Flow (b) Stock (c) Flow and stock, both (d) Qualitative
Answer:(a) Flow

240. Supply is the:

(a) Limited resources that are avail-able with the seller.
(b) Cost of producing a good.
(c) Entire relationship between the quantity supplied and the price of good.
(d) Willingness to produce a good if the technology to produce it becomes available.
Answer:(c) Entire relationship between the quantity supplied and the price of good.

241. The quantity supplied of a good or service is the amount that ________
(a) Is actually bought during a given time period at a given price.
(b) Producers wish they could sell at a higher price.

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(c) Producers plan to sell during a given time period at a given price.
(d) People are willing to buy during a given time period at a given price.
Answer:(c) Producers plan to sell during a given time period at a given price.

242. In a very short period, the supply:

(a) Can be changed. (c) Can be increased.
(b) Cannot be changed. (d) None of the above.
Answer:(b) Cannot be changed.

243. Which of the following statement is correct?

(a) Supply is inversely related to its cost of production
(b) Price and quantity demand of a goods have direct relationship
(c) Taxes and subsidy has no impact on the supply of the product
(d) Seasonal changes have no impact on the supply of the commodity
Answer:(a) Supply is inversely related to its cost of production

244. The term supply refers to the amount of goods or services that the pro-ducers are ________
to the market at value prices during a given period of time.
(a) Willing to offer (c) Actually Sold
(b) Able to Offer (d) Both (a) & (b)
Answer: (d) Both (a) & (b)

245. Which of the following is a factor determining the supply?

(a) Price of the good (c) Price of factor of Production
(b) Price of related goods (d) All of the above.
Answer: (d) All of the above.

246. Other things being equal, the ________ the relative price of a good the ________ the
quantity of it that will be supplied.
(a) Higher, Lesser (c) Lower, Lower
(b) Higher, Greater (d) None of these

Answer:(b) Higher, Greater

247. Under ________ conditions, Supply will be more than that under ________ conditions.
(a) Competitive, Monopolized (c) Monopolized, Oligopoly
(b) Monopolized, Competitive (d) Duopoly, Monopolized.
Answer:(a) Competitive, Monopolized

248. The supply of a particular product depends upon the state of technology also. Inventions and
innovations tend to make it possible to produce ________ goods with the same resources.
(a) More (b) Better (c) Lesser (d) More and/or Better
Answer:(d) More and/or Better

249. According to law of supply, change in supply is related to?

(a) Price of goods (c) Factors of production
(b) Price of related goods (d) None of the above
Answer:(a) Price of goods

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250. If the demand is more than sup¬ply, then the pressure on price will be:
(a) Upward (b) Downward (c) Constant (d) None of the above
Answer:(a) Upward

251. If the supply of bottled water decreases, other things remaining the same, the equilibrium
price ________ and the equilibrium quantity ________.
(a) Increases; decreases. (c) Decreases; decreases.
(b) Decreases; increases. (d) Increases; increases.
Answer:(a) Increases; decreases.

252. In the book market, the supply of books will decrease if any of the following occurs except
________.
(a) A decrease in the number of book publishers.
(b) A decrease in the price of the book.
(c) An increase in the future expected price of the book.
(d) An increase in the price of paper used.
Answer:(b) A decrease in the price of the book.

253. An increase in the number of sell-ers of bikes will increase the ________.
(a) The price of a bike. (c) The supply of bikes.
(b) Demand for bikes. (d) Demand for helmets.
Answer:(c) The supply of bikes.

254. If good growing conditions in-creases the supply of strawberries and hot weather increases
the demand for strawberries, the quantity of strawber¬ries bought.
(a) Increases and the price might rise, fall or not change.
(b) Does not change but the price rises.
(c) Does not change but the price falls.
(d) Increases and the price rises.
Answer:(a) Increases and the price might rise, fall or not change.

255. The supply curve for perishable commodities is ________.

(a) Elastic (b) Inelastic (c) perfectly elastic (d) perfectly inelastic
Answer:(d) perfectly inelastic

256. When supply price increase in the short run, the profit of the producer ________.
(a) Increases (b) Decreases (c) Remains constant (d) Decreases marginally
Answer:(a) Increases

257. The ________ is a graphical presentation of the ________.

(a) Supply Curve, Demand Schedule (c) Demand Curve, Supply Schedule
(b) Supply Curve, Supply Schedule (d) None of these.

Answer:(b) Supply Curve, Supply Schedule

258. Contraction of supply is the result of:

32
(a) Decrease in the number of pro-ducers.
(b) Decrease in the price of the good
concerned.
(c) Increase in the prices of other goods.
(d) Decrease in the outlay of sellers.
Answer:(b) Decrease in the price of the good concerned.

259. When the supply of a good increase as a result of an increase in its price, then it is an
increase in ________ and there is a upward ________ the supply curve.
(a) Quantity Supplied, movement on (c) Supply, movement on
(b) Quantity Supplied, Shift of (d) Supply, Shift of
Answer:(a) Quantity Supplied, movement on

260. Movements on the supply curve may be due to:

(a) Change in price of goods (c) Change in technology
(b) Change in price of related goods (d) None of the above.
Answer:(a) Change in price of goods

261. Contraction of supply implies ________.

(a) Decrease in cost of production (c) Decrease in price of related good
(b) Decrease in price of the good concerned (d) Increase in price of the good concerned
Answer:(b) Decrease in price of the good concerned

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

(a) Improvements in its technology. (c) Fall in the prices of factors of production.
(b) Fall in the prices of other goods. (d) All of the above.
Answer:(d) All of the above.

263. When supply curve moves to right, it means ________.

(a) Supply increases. (c) Supply remains constant.
(b) Supply decreases. (d) None of the above.
Answer:(a) Supply increases.

264. When supply curve shifts to the right there is:

(a) An increase (b) Expansion (c) Contraction (d) Decrease
Answer:(a) An increase

265. When supply curve moves to the left, it means ________.

(a) Smaller supply at a given price. (c) Constant supply at a lower price.
(b) Larger supply at a given price. (d) None of the above.

Answer: (a) Smaller supply at a given price.

266. When the supply curve shifts to the left or right, it is called as ________ or ________ in
supply, respectively.
(a) Decrease, Decrease (c) Increase, Increase
(b) Decreases, Increase (d) Increase, Decrease.

33
Answer:(b) Decreases, Increase

267. Elasticity of supply refers to the degree of responsiveness of supply of a good to changes in
its:
(a) Demand. (b) Price. (c) Cost of production. (d) State of technology.
Answer:(b) Price.

268. The elasticity of supply is defined as the ________.

(a) Responsiveness of the quantity supplied of a good to a change in its price.
(b) Responsiveness of the quantity supplied of a good without change in its price.
(c) Responsiveness of the quantity demanded of a good to a change in its price.
(d) Responsiveness of the quantity demanded of a good without change in its price.
Answer:(a) Responsiveness of the quantity supplied of a good to a change in its price.

269. Elasticity of supply is measured by dividing the percentage change in quantity supplied of a
good by ________.
(a) Percentage change in income.
(b) Percentage change in quantity demanded of goods.
(c) Percentage change in price.
(d) Percentage change in taste and preference.
Answer:(c) Percentage change in price.

270. Which of the following statements is correct?

(a) When the price falls the quantity demanded falls.
(b) Seasonal changes do not affect the supply of a commodity.
(c) Taxes and subsidies do not influence the supply of the commodity.
(d) With lower cost, it is profitable to supply more of the commodity.
Answer:(d) With lower cost, it is profitable to supply more of the commodity.

271. When price of a commodity Rises from 200 to ₹ 300 and Quantity supply increases from
2,000 to 5,000 units find elasticity of supply?
(a) 3.0 (b) 2.5 (c) 0.3 (d) 3.5
Answer:(a) 3.0

272. If price of computers increases by 10% and supply increases by 25%. The elasticity of supply is
(a) 2.5 (b) 0.4 (c) (-) 2.5 (d) (-) 0.4
Answer:(a) 2.5

273. The Price of Commodity X in-creased from ₹ 2,000 per unit to ₹ 2,100 per unit and
consequently the quantity supplied rises from 2,500 units to 3,000 units. The Elasticity of supply
will be
(a) 2 (b) 4 (c) .25 (d) 0
Answer:(b) 4

274. Perishable commodities will have ________.

(a) Perfectly elastic curve (b) Perfectly inelastic curve (c) Elastic (d) Inelastic
Answer:(b) Perfectly inelastic curve
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275. A vertical supply curve parallel to Y axis implies that the elasticity of supply is:
(a) Zero. (c) Equal to one.
(b) Infinity. (d) Greater than zero but less than infinity.

Answer:(a) Zero.

276. A horizontal supply curve parallel to the quantity axis implies that the elasticity of supply is:
(a) Zero. (c) Equal to one.
(b) Infinite. (d) Greater than zero but less than one.
Answer:(b) Infinite.

277. If the percentage change in supply is less than the percentage change in price it is called
________.
(a) Unit elasticity of supply. (c) More elastic supply.
(b) Perfectly elastic. (d) Inelastic supply.
Answer:(d) Inelastic supply.

278. Elasticity of supply is zero means?

(a) Perfectly inelastic (c) Imperfectly elastic
(b) Perfectly elastic (d) All of the above
Answer:(a) Perfectly inelastic

279. If the quantity supplied is exactly equal to the relative change in price then the elasticity of
supply is:
(a) Less than one. (c) One.
(b) Greater than one. (d) None of the above.

Answer:(c) One.

280. Elasticity of supply is greater than one when ________.

(a) Proportionate change in quantity supplied is more than the proportionate change in price.
(b) Proportionate change in price is greater than the proportionate change in quantity supplied.
(c) Change in price and quantity supplied are equal.
(d) None of the above.
Answer:(a) Proportionate change in quantity supplied is more than the proportionate change in
price.

281. When the supply of a product is perfectly inelastic then the curve will be
(a) Parallel to Y – axis (c) At the angle of 45°
(b) Parallel to X – axis (d) Sloping upwards
Answer:(a) Parallel to Y – axis

282. The cross elasticity between Rye bread and Whole Wheat bread is expected to be:
(a) Positive (b) Negative (c) Zero (d) Can’t say
Answer:(a) Positive

283. The supply function is given as Q = 100 + 10 P. Find the elasticity using point method, when
price is ₹ 15.
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(a) 4 (b) -3 (c) -5 (d) 3
Answer:(d) 3

284. Equilibrium refers to a market situation where quantity demand is to quantity supplied.
(a) Equal (c) More than
(b) Less than or Equal (d) More than or equal
Answer:(a) Equal

285. The equilibrium price is deter-mined by the inter-section between ________ and ________ It
is also called as the equilibrium.
(a) Demand, Supply, Static (c) Supply, Demand, Partial
(b) Demand Supply, Dynamic (d) Demand, Supply, Market
Answer:(d) Demand, Supply, Market

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