FOUNDATION
Chapter – 2 (Unit 1)
Subject: Economics Marks 50
Test ID: 82541 Time Allowed: 60 Mins
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
2. The Law of Demand, assuming other things to remain constant, establishes 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.
3. 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.
4. In the case of an inferior good, the income elasticity of demand
a) Positive.
b) Zero.
c) Negative.
d) Infinite
5. A movement along the demand curve for soft drinks is best described as:
a) An increase in demand.
b) A decrease in demand.
c) A change in quantity demanded.
d) A change in demand.
6. 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
7. 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
8. Suppose the price of movies seen at a theatre rises from 120 per person to 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)
a) 0.5
b) 0.8
c) 1.0
d) 1.2
9. 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 therefore cannot be considered as substitutes
10. 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.
11. 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.
b) Large fall in demand.
c) Small fall in quantity demanded.
d) Small fall in demand.
12. 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
percent.
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
13. In the case of a Giffen good, the demand curve will usually be:
a) horizontal.
b) downward-sloping to the right.
c) vertical.
d) upward-sloping to the right.
14. 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.
15. 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
16. When total demand for a commodity whose price has fallen increases, it is due to:
a) Income effect.
b) Substitution effect
c) Complementary effect
d) Price effect
17. 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
18. If the goods are perfect substitutes for each other then cross elasticity is
a) Inffinite
b) One
c) Zero
d) None of the above
19. If a good is a luxury, its income elasticity of demand is
a) Positive and less than 1
b) Negative but greater than -1
c) Positive and greater than 1
d) Zero
20. If a good has price elasticity greater than one then:
a) demand is unit elastic and a change in price does not affect sellers' revenue.
b) demand is elastic and a change in price causes sellers' revenue to change in
the opposite direction.
c) demand is inelastic and a change in price causes sellers' revenue to change in the
same direction.
d) None of the above is correct.
21. The horizontal demand curve parallel to x-axis implies that the elasticity of demand is
a) Zero
b) Infinite
c) Equal to one
d) Greater than zero but less than infinity
22. When quantity demanded changes by larger percentage than does price, elasticity is termed
as:
a) Inelastic
b) Elastic
c) Perfectly Elastic
d) Perfectly Inelastic
23. If the proportion of income spent on a goods decrease as income rises then income elasticity
is:
a) Greater than one
b) Less than one
c) One
d) Zero
24. If two goods are totally unrelated, then cross elasticity between them is:
a) Zero
b) One
c) Infinite
d) None of the above
25. Normal goods have:
a) Positive income elasticity
b) Negative income elasticity
c) Fluctuating income elasticity
d) Zero income elasticity
26. A consumer demands 5 units of a commodity at the price of Rs. 4 per unit. He demands 10
units when the price falls to Rs 3 per unit. Price elasticity of demand is equal to-
a) 3
b) 2
c) 1.5
d) 4
27. Availability of close substitutes makes the demand-
a) More elastic
b) Less elastic
c) Parallel to X axis
d) Parallel to Y axis
28. Demand for water is
a) Elastic
b) Inelastic
c) Perfectly elastic
d) Relatively elastic
29. Inferior goods are those goods whose income effect is-
a) Negative
b) Positive
c) Zero
d) None of these
30. Suppose income elasticity of bread is 0.25, its means that bread is-
a) Inferior goods
b) Luxury goods
c) Nor Normal goods
d) Can't say
31. Suppose that at a price of Rs. 300 per month, there are 30,000 subscribers to cable television
in Small Town. If Small Town Cablevision raises its price to Rs. 400 per month, the number of
subscribers will fall to 20,000. Using the arc elasticity (midpoint) method for calculating the
elasticity, what is the price elasticity of demand for cable TV in Small Town?
a) 1.4
b) 0.66
c) 0.75
d) 2.0
32. Conspicuous goods are also known as
a) Prestige goods
b) Snob goods
c) Veblen goods
d) All of the above
33. Chicken and fish are substitutes. If the price of chicken increases, the demand for fish will
a) Increase or decrease but the demand 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.
34. A decrease in the demand for mobiles, other things remaining the same will
a) Increase the number of mobiles bought
b) Decrease the price but increase the number of mobiles bought
c) Increase the price of mobiles
d) Decrease the price and decrease in the number of mobiles bought
35. Demand for factor of production is
a) supplementary demand
b) intermediate goods
c) derived demand
d) complementary demand
36. The cross elasticity between tea and coffee is:
a) infinite
b) positive
c) zero
d) negative
37. When violation of law of demand occurs:
a) substitution effect is negative
b) income effect is negative
c) negative income effect is less than substitution effect
d) negative income effect is greater than substitution effect
38. Exception to the law of demand
a) Speculative effect
b) Fear of Shortage
c) Ignorance
d) All the above
39. In case of inferior goods
a) Income effect and substitution effect work in opposite direction
b) Income effect and substitution effect work in same direction
c) It leads consumer to purchase less of a good and more of the substitute
d) None of these
40. Snob effect is explained as___________
a) It is a function of consumption of others
b) It is a function of price
c) Both (a) and (b)
d) None of these
41. Which of the following are the determinant of price elasticity of demand:
a) Availability of substitutes
b) Time period
c) Tied demand
d) All of these
42. If the cross elasticity is only- slightly below zero which of the following is correct?
a) They are weak complements
b) Negative and very high they are strong complements
c) Both (a) and (b)
d) None of these
43. If regardless of change in the price the quantity demanded of a good remains unchanged
then the demand curve for the good will be –
a) Vertical
b) Horizontal
c) Negatively sloped
d) None of these.
44. Rationale of the law of demand is:
a) Price effect of a fall in price
b) Different uses
c) Arrival of new consumers
d) All of these
45. The cross elasticity between two goods will be:
a) Positive
b) Negative
c) Either (a) or (b)
d) None of these
46. Law of demand is violated when
a) Income effect is negative
b) Substitution effect is negative
c) Negative income effect is greater than the substitution effect
d) None of these
47. Elasticity is greater than utility for
a) Luxuries
b) Necessaries
c) Complementary good
d) None of these
48. If increasing railway fare increases revenue and decreasing then decrease revenue then the
demand for railway travel has a price elasticity of
a) Greater than 1
b) 1
c) Greater than 0 but less than 1
d) None of these
49. 'No matter what the price of coffee is, Ram always spend a total of exactly 100 per week on
coffee. The statement implies that;
a) Ram is very fond coffee and therefore he has an inelastic demand for coffee
b) Ram has elastic demand for coffee
c) Ram's demand for coffee is relatively less elastic
d) Ram's demand for coffee is unit elastic
50. Demand for electricity is elastic because_______
a) It is very expensive
b) It has a number of close substitutes
c) It has alternative uses
d) None of the above
