WorksheetsCHP 2 UNIT 1 Theory of Demand
Total questions: 102
Worksheet time: 51mins
Demand for a commodity refers to:
desire backed by ability to pay for the commodity.
need for the commodity and willingness to pay for it
the quantity demanded of that commodity at ascertain price.
the quantity of the commodity demanded at a certain price during any particular period of time.
Contraction of demand is the result of:
decrease in the number of consumers.
increase in the price of the good concerned.
increase in the prices of other goods.
decrease in the income of purchasers.
All but one of the following are assumed to remain the same while drawing an individual’s demand curve for a commodity. Which one is it?
The preference of the individual.
His monetary income.
Price of the commodity
Price of related goods.
In the case of a straight line demand curve meeting the two axes, the price-elasticity of demand at the mid-point of the line would be:
0
1
1.5
2
The Law of Demand, assuming other things to remain constant, establishes the relationship between:
income of the consumer and the quantity of a good demanded by him.
price of a good and the quantity demanded
price of a good and the demand for its substitute.
quantity demanded of a good and the relative prices of its complementary goods.
Identify the factor which generally keeps the price-elasticity of demand for a good low:
Variety of uses for that good
Very low price of a commodity
Close substitutes for that good.
High proportion of the consumer’s income spent on it
Identify the coefficient of price-elasticity of demand when the percentage increase in the quantity of a good demanded is smaller than the percentage fall in its price:
Equal to one
Greater than one
Less than one
Zero.
In the case of an inferior good, the income elasticity of demand is:
Positive
Zero
Negative
Infinite
If the demand for a good is inelastic, an increase in its price will cause the total expenditure of the consumers of the good to:
Remain the same.
Increase
Decrease
Any of these.
If regardless of changes in its price, the quantity demanded of a good remains unchanged, then the demand curve for the good will be:
Horizontal
Vertical
positively sloped.
negatively sloped.
Suppose the price of Pepsi increases, we will expect the demand curve of Coca Cola to:
Shift towards left since these are substitute
Shift towards right since these are substitutes
Remain at the same level
None of the above
All of the following are determinants of demand except:
Tastes and preferences
Quantity supplied.
Income of the consumer
Price of related goods.
A movement along the demand curve for soft drinks is best described as:
An increase in demand.
A decrease in demand
A change in quantity demanded.
A change in demand.
If the price of Pepsi decreases relative to the price of Coke and 7-UP, the demand for:
Coke will decrease
7-Up will decrease.
Coke and 7-UP will increase.
Coke and 7-Up will decrease
If a good is a luxury, its income elasticity of demand is
Positive and less than 1.
Negative but greater than -1.
Positive and greater than 1.
Zero
The price of hot dogs increases by 22% and the quantity of hot dogs demanded falls by 25%. This indicates that demand for hot dogs is:
Elastic
Inelastic
Unitarily elastic
Perfectly elastic
If the quantity demanded of mutton increases by 5% when the price of chicken increases by 20%, the crossprice elasticity of demand between mutton and chicken is
-0.25
0.25
-4
4
Given the following four possibilities, which one results in an increase in total consumer expenditure?
Demand is unitary elastic and price falls.
Demand is elastic and price rises.
Demand is inelastic and price falls.
Demand is inelastic and prices rises
Which of the following is an incorrect statement?
When goods are substitutes, a fall in the price of one (ceteris paribus) leads to a fall in the quantity demanded of its substitutes.
When commodities are complements, a fall in the price of one (other things being equal) will cause the demand of the other to rise
As the income of the consumer increases, the demand for the commodity increases always and vice versa.
When a commodity becomes fashionable people prefer to buy it and therefore its demand increases
Suppose the price of movies seen at a theatre rises from Rs 120 per person to Rs 200 per person. The theatre 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)
0.5
0.8
1.0
1.2
When the numerical value of cross elasticity between two goods is very high, it means
The goods are perfect complements and therefore have to be used together
The goods are perfect substitutes and can be used with ease in place of one another
There is a high degree of substitutability between the two goods
The goods are neutral and therefore cannot be considered as substitutes
If electricity demand is inelastic, and electricity charges increase, which of the following is likely to occur?
Quantity demanded will fall by a relatively large amount.
Quantity demanded will fall by a relatively small amount
Quantity demanded will rise in the short run, but fall in the long run
Quantity demanded will fall in the short run, but rise in the long run
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:
Large fall in quantity demanded
Large fall in demand
Small fall in quantity demanded
Small fall in demand.
Point elasticity is useful for which of the following situations?
The bookstore is considering doubling the price of notebooks.
A restaurant is considering lowering the price of its most expensive dishes by 50 percent.
An auto producer is interested in determining the response of consumers to the price of cars being lowered by Rs 100.
None of the above.
A decrease in price will result in an increase in total revenue if
The percentage change in quantity demanded in less than the percentage change in price.
The percentage change in quantity demanded is greater than the percentage change in price.
Demand is inelastic.
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.
An increase in price will result in an increase in total revenue if:
The percentage change in quantity demanded is less than the percentage change in price.
The percentage change in quantity demanded is greater than the percentage change in price.
Demand is elastic
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
Demand for a good will tend to be more elastic if it exhibits which of the following characteristics?
It represents a small part of the consumer’s income.
The good has many substitutes available.
It is a necessity (as opposed to a luxury).
There is little time for the consumer to adjust to the price change.
Demand for a good will tend to be more inelastic if it exhibits which of the following characteristics?
The good has many substitutes
The good is a luxury (as opposed to a necessity).
The good is a small part of the consumer’s income.
There is a great deal of time for the consumer to adjust to the change in prices
What will happen in the rice market if buyers are expecting higher rice prices in the near future?
The demand for rice will increase and the demand curve will shift to the right
The demand for rice will decrease and the demand curve will shift to the left
The demand for rice will be unaffected as it is a necessity
The demand for wheat will increase and the demand curve will shift to the right
In the case of a Giffen good, the demand curve will usually be
Horizontal
Downward-sloping to the right.
Vertical
Upward-sloping to the right
For a normal good with a downward sloping demand curve
The price elasticity of demand is negative; the income elasticity of demand is negative.
The price elasticity of demand is positive; the income elasticity of demand is negative.
The price elasticity of demand is positive; the income elasticity of demand is positive.
The price elasticity of demand is negative; the income elasticity of demand is positive.
Conspicuous goods are also known as
Prestige goods
Snob goods
Veblen goods
All of the above
The quantity purchased remains constant irrespective of the change in income. This is known as
negative income elasticity of demand
income elasticity of demand less than one
zero income elasticity of demand
income elasticity of demand is greater than one
As income increases, the consumer will go in for superior goods and consequently the demand for inferior goods will fall. This means inferior goods have
income elasticity of demand less than one
negative income elasticity of demand
zero income elasticity of demand
unitary income elasticity of demand
When income increases the money spent on necessaries of life may not increase in the same proportion, This means
income elasticity of demand is zero
income elasticity of demand is one
income elasticity of demand is greater than one
income elasticity of demand is less than one
The luxury goods like jewellery and fancy articles will have
low income elasticity of demand
high income elasticity of demand
zero income elasticity of demand
none of the above
A good which cannot be consumed more than once is known as
Durable good
Non-durable good
Producer good
None of the above
A relative price is
price expressed in terms of money
what you get paid for babysitting your cousin
the ratio of one money price to another
equal to a money price
Demand is the
the desire for a commodity given its price and those of related commodities
the entire relationship between the quantity demanded and the price of a good other things remaining the same
willingness to pay for a good if income is larger enough
ability to pay for a good
Suppose potatoes have (-)0.4 as income elasticity. We can say from the data given that:
Potatoes are superior goods
Potatoes are necessities
Potatoes are inferior goods.
There is a need to increase the income of consumers so that they can purchase potatoes.
The price of tomatoes increases and people buy tomato puree. You infer that tomato puree and tomatoes are
Normal goods
Complements
Substitutes
Inferior goods
Chicken and fish are substitutes. If the price of chicken increases, the demand for fish will
Increase or decrease but the demand curve for chicken will not change
Increase and the demand curve for fish will shift rightwards
Not change but there will be a movement along the demand curve for fish.
Decrease and the demand curve for fish will shift leftwards.
Potato chips and popcorn are substitutes. A rise in the price of potato chips will —————— the demand for popcorn and the quantity of popcorn sold will ——————
increase; increase
increase; decrease
decrease; decrease
decrease; increase
If the price of orange Juice increases, the demand for apple Juice will __________.
increase because they are substitutes
decrease because they are substitutes
remain the same because real income is increased
decrease as real income decreases
An increase in the demand for computers, other things remaining same, will:
Increase the number of computers bought.
Decrease the price but increase the number of computers bought.
Increase the price of computers.
Increase the price and number of computers bought.
When total demand for a commodity whose price has fallen increases, it is due to:
Income effect.
Substitution effect
Complementary effect
Price effect
With a fall in the price of a commodity:
Consumer’s real income increases
Consumer’s real income decreases
There is no change in the real income of the consumer
None of the above
With an increase in the price of diamond, the quantity demanded also increases. This is because it is a:
Substitute good
Complementary good
Conspicuous good
None of the above
An example of goods that exhibit direct price-demand relationship is
Giffen goods
Complementary goods
Substitute goods
None of the above
In Economics, when demand for a commodity increases with a fall in its price it is known as:
Contraction of demand
Expansion of demand
No change in demand
None of the above
A decrease in the demand for cameras, other things remaining the same will
Increase the number of cameras bought
Decrease the price but increase the number of cameras bought
Decrease in quantity of camera demanded
Decrease the price and decrease in the number of cameras bought.
Which of the following statements about inferior goods is/are false?
I and III only
I only
III only
I, II, and III.
The price of a commodity decreases from Rs 6 to Rs 4 and the quantity demanded of the good increases from 10 units to 15 units, find the coefficient of price elasticity.
1.5
2.5
-1.5
0.5
At higher prices people demand more of certain goods not for their worth but for their prestige value – This is called
Veblen effect
Giffen paradox
Speculative effect
None of the above
If the price of air-conditioner increases from Rs 30,000 to Rs 30,010 and resultant change in demand is negligible, we use the measure of _______ to measure elasticity.
Point elasticity of demand since it is a small change
Arc elasticity of demand since it is a small change
Price elasticity based on average prices method
Any of the above
Given the following four possibilities, which one will result in an increase in total expenditure of the consumer?
Demand is unit elastic and price rises
Demand is elastic and price rises
Demand is inelastic and price falls
demand is inelastic and price rises
Which of the following statements is correct?
With the help of statistical tools, the demand can be forecasted with perfect accuracy
The more the number of substitutes of a commodity, the more elastic is the demand
Demand for butter is perfectly elastic.
Gold jewellery will have negative income elasticity.
Suppose the income elasticity of education in private school in India is 3.6. What does this indicate
Private school education is highly wanted by rich
Private school education is a necessity
Private school education is a luxury
We should have more private schools.
If the organizers of an upcoming cricket match decide to increase the ticket price in order to raise its revenues, what they have learned from past experience is:
The percentage increase in ticket rates will be always equal the percentage decrease in tickets sold
The percentage increase in ticket rates will be always greater than the percentage decrease in tickets sold
The percentage increase in ticket rates will be less than the percentage decrease in tickets sold
(a) and (c) above are true
The following diagram shows the relationship between price of Good X and quantity demanded of Good Y. What we infer from the diagram is;
Good X and Good Y are perfect complements
Good X and Good Y are perfect substitutes
Good X and Good Y are remote substitutes
Good X and Good Y are close substitutes
The diagram given below shows
A change in demand which may be caused by a rise in income and the good is a normal good
A shift of demand curve caused by a fall in the price of a complementary good
A change in demand which is caused by a rise in income and the good is an inferior good
A shift of demand curve caused by a rise in the price of a substitute and the good is a normal good
The demand curve of a normal good has shifted to the right. Which of the four events would have caused the shift?
A fall in the price of a substitute with the price of the good unchanged
A fall in the nominal income of the consumer and a fall in the price of the normal good
A fall in the price of a complementary good with the price of the normal good unchanged
A fall in the price of the normal good, other things remaining the same
If roller-coaster ride is a function of amusement park visit, then, if the price of amusement park entry falls
The demand for roller-coaster rides will rise and the demand curve will shift to right
The demand for roller coaster ride cannot be predicted as it depends on the tastes of consumers for the ride
There will be an expansion in the demand for roller coaster drive as it complementary
None of the above
The average income of residents of two cities A and B and the corresponding change in demand for two goods is given in the following table. Which of the following statements is true?
Both goods are normal goods in both cities A and B
Good X is a normal good in both cities; good Y is an inferior good in city A
Good X is a normal good in both cities; good Y is an inferior good in city B
Need more information to make an accurate comment
During a recession, economies experience increased unemployment and a reduced level of income. How would a recession likely to affect the market demand for new cars?
Demand curve will shift to the right.
Demand curve will shift to the left
Demand will not shift, but the quantity of cars sold per month will decrease.
Demand will not shift, but the quantity of cars sold per month will increase.
Which of the following groups of goods have inelastic demand?
Essential medicines, salt, and electricity
Luxury cars, designer clothes, and jewelry
Smartphones, laptops, and tablets
Holiday packages, movie tickets, and concert passes
If the price of a commodity raised by 12% and Ed is (-) 0.63, the expenditure made on the commodity by a consumer will __________
Decrease
Increase
Remain same
Can’t say
During lockdown due to COVID-19, a consumer finds the vegetable vendors selling vegetables in the street have raised the prices of vegetables than usual prices. She will buy __________ vegetables than/as her usual demand showing the demand of vegetables is
more, inelastic demand
less, elastic demand
same, inelastic demand
same, elastic demand
Commodities such as prescribed medicines and salt have (a) and hence, have an (b) demand.
high
low
stable
volatile
Let slope of demand curve is (-) 0.6, calculate elasticity of demand when initial price is Rs. 30 per unit and initial quantity is 100 units of the commodity
0.5
5.55
-0.5
-0.18
Let Qx = 1500/ Px, the elasticity of demand of the good X when its price falls from Rs. 8 to Rs. 2 per unit, will be-
greater than one
less than one
equal to one
can’t say
The concept of elasticity of demand is a:
Qualitative concept
Quantitative concept
Quantitative and qualitative concept
Neither qualitative nor quantitative concept
The most crucial determinant of demand for an item is (a)
Income of consumer
Prices of other related goods
Taste and preference of consumer
It’s own price
The price of a piece of jewellery rises, the demand for it may also rise as consumers attach a (a) to owning and displaying expensive items.
money value
use value
snob value
None of these
With reference to Arc elasticity measures the responsiveness of demand (a) on the demand curve
at one given point
at intercepts on X-axis & Y-axis
between two points
Any of the above
In the above figure, DD1 is the demand curve of a commodity. There are two points on the demand curve i.e., A and B with (P, Q) as (10, 2) & (8, 3) respectively. If the initial point is A OR initial point is B, the price elasticity of demand will be –
same in both cases by point method of price elasticity of demand
different in both cases by Arc method of price elasticity of demand
same in both cases by Arc method & different by point method of price elasticity of demand
None of these
Goods X and Y being independent goods, the cross price elasticity of demand (ignoring the sign) between them will be-
1 (unit elastic)
less than 1
greater than 1
Zero
'Ceteris Paribus' clause in Law of demand does not mean-
The price of the commodity does not change
The price of substitutes does not change
The income of consumer does not change
The price of complementary goods does not change
Demand for electricity is elastic because ——————.
it is very expensive
it has a number of close substitutes
it has alternative uses
none of the above
______ and ______ do not directly affect the demand curve
the price of related goods, consumer incomes
Consumer incomes, tastes
the costs of production, bank opening hours
the price of related goods, preferences
If consumers always spend 15 percent of their income on food, then the income elasticity of demand for food is ________.
1.50
1.15
1
0.15
The elasticity of substitution between two perfect substitutes is:
Zero
greater than zero
less than infinity
infinite
In the case of a straight line demand curve meeting the two axes the price – elasticity of demand at the mid-point of the line would be:
0
1
1.5
2
Cross elasticity of demand between tea and coffee is:
positive
negative
zero
infinite
If a point on a demand curve of any commodity lies on X Axis, then price elasticity of demand of that commodity at that point will be ________
Infinite
More than zero
Less than zero
Zero
Read the following data and answer Questions Number 86-91. XYZ are three commodities where X and Y are complements whereas X and Z are substitutes. A shopkeeper sells commodity X at Rs. 40 per piece. At this price he is able to sell 100 pieces of X per month. After some time, he decreases the price of X to Rs. 20. Following the price decrease, he is able to sell 150 pieces of X per month, the demand for Y increases from 25 units to 50 units and the demand for commodity Z decreases from 150 to 75 units. The price elasticity of demand when the price of X decreases from Rs. 40 per piece to Rs. 20 per piece will be equal to:
1.5
1
1.66
0.6
Read the following data and answer Questions Number 86-91. XYZ are three commodities where X and Y are complements whereas X and Z are substitutes. A shopkeeper sells commodity X at Rs. 40 per piece. At this price he is able to sell 100 pieces of X per month. After some time, he decreases the price of X to Rs. 20. Following the price decrease, he is able to sell 150 pieces of X per month, the demand for Y increases from 25 units to 50 units and the demand for commodity Z decreases from 150 to 75 units. The cross elasticity of monthly demand for Y when the price of X decrease from Rs. 40 to Rs. 20 is equal to:
2
-2
-1.5
1.5
Read the following data and answer Questions Number 86-91. XYZ are three commodities where X and Y are complements whereas X and Z are substitutes. A shopkeeper sells commodity X at Rs. 40 per piece. At this price he is able to sell 100 pieces of X per month. After some time, he decreases the price of X to Rs. 20. Following the price decrease, he is able to sell 150 pieces of X per month, the demand for Y increases from 25 units to 50 units and the demand for commodity Z decreases from 150 to 75 units. The cross-elasticity of Z when the price of X decreases from 40 to 20 is equal to:
-0.6
0.6
-1
1
What can be said about price elasticity of demand for X?
The price elasticity of demand for X measures how much the quantity demanded changes in response to a change in price.
The price elasticity of demand for X measures the relationship between supply and demand.
The price elasticity of demand for X is always equal to one.
The price elasticity of demand for X is unrelated to consumer behavior.
If the percentage change in price is equal to the percentage change in quantity demanded, then:
Demand is unit elastic
Demand is highly elastic
Demand is perfectly elastic
Demand is inelastic
Suppose income of the residents of locality increase by 50% and the quantity of X commodity increases by 20%. What is income elasticity of demand for commodity X?
0.6
0.4
1.25
1.35
We can say that commodity X in economics is a/an
luxury good
inferior Good
normal Good
none of the above
If the demand for a good is inelastic, an increase in its price will cause the total expenditure of the consumers of the good to:
Remain the same
Increase
Decrease
Any of these
For Giffen goods, the Engel curve is:
Positive sloped
Vertical
Horizontal
Negative sloped
The Coefficient of Price elasticity of demand between two points on a demand curve is ___
Arc elasticity
Point elasticity
Price elasticity
None of these
When the demand curve is a rectangular hyperbola an increase in the price of the commodity causes the total expenditure of consumers of the commodity to:
Remain unchanged
Increase
Decrease
Any of the above
The Substitution effect will be stronger when-
The goods are closer substitutes
There is lower cost of switching to the substitute good
There is lower inconvenience while switching to the substitute good.
All of these
According to Hicks and Allen the demand curve slope downwards due to ____
Law of diminishing marginal utility
Income effect and substitution effect
Either (a) or (b)
None of these
If increasing railway fare increases revenue, then the demand for railway travel has a price elasticity of ____
Greater than 1
1
Greater than 0 but less than 1
None of these
Which of the following factors would likely lead to a decrease in the demand for a product?
A decrease in the number of consumers in the market.
A rise in consumer preferences for the product.
An increase in consumer income.
A decrease in the price of a substitute good.
If the price of a good increases and the quantity demanded decreases, this is an example of:
Contraction of demand
Expansion of demand
Increase in demand
Decrease in demand
When the price of a good falls, the substitution effect leads to:
A shift in the demand curve to the left.
An increase in the quantity demanded of that good.
A decrease in the quantity demanded of that good.
No change in the quantity demanded.
