10. 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 :
(a) remain the same.
(b) increase.
(c) decrease.
(d) any of these.
11. 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.
12. The law of demand is :
(a) a quantitative statement.
(b) a qualitative statement.
(c) both a quantitative and a qualitative statement.
(d) neither a quantitative nor a qualitative statement.
13. All of the following are determinants of demand except :
(a) tastes and preferences.
(b) quantity supplied.
(c) income.
(d) price of related goods.
14. 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.
15. 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.
16. 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.
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17. 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.
18. If the quantity demanded of beef increases by 5% when the price of chicken increases by
20%, the cross-price elasticity of demand between beef and chicken is
(a) -0.25
(b) 0.25
(c) -4
(d) 4
19. Given the following four possibilities, which one results in an increase in total consumer
expenditures?
(a) demand is unitary elastic and price falls.
(b) demand is elastic and price rises.
(c) demand is inelastic and price falls.
(d) demand is inelastic and prices rises.
20. The price elasticity of demand for hamburger is
(a) the change in the quantity demanded of hamburger when hamburger increases by
30 paise per rupee.
(b) the percentage increase in the quantity demanded of hamburger when the price of
hamburger falls by 1 per cent per rupee.
(c) the increase in the demand for hamburger when the price of hamburger falls by 10
per cent per rupee.
(d) the decrease in the quantity demanded of hamburger when the price of hamburger
falls by 1 per cent per rupee.
21. The price elasticity of demand is defined as the responsiveness of :
(a) price to a change in quantity demanded.
(b) quantity demanded to a change in price.
(c) price to a change in income.
(d) quantity demanded to a change in income.
22. Suppose the price of movies seen at a theater rises from Rs. 120 per person to Rs. 200 per
person. The theater manager observes that the rise in price causes attendance at a given
movie to fall from 300 persons to 200 persons. What is the price elasticity of demand for
movies?
(a) .5
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(b) .8
(c) 1.0
(d) 1.2
23. Suppose a department store has a sale on its silverware. If the price of a plate-setting is
reduced from Rs. 300 to Rs. 200 and the quantity demanded increases from 3,000 plate-
settings to 5,000 plate-settings, what is the price elasticity of demand for silverware?
(a) .8
(b) 1.0
(c) 1.25
(d) 1.50
24. A discount store has a special offer on CDs. It reduces their price from Rs. 150 to Rs. 100.
Suppose the store manager observes that the quantity demanded increases from 700 CDs
to 1,300 CDs. What is the price elasticity of demand for CDs?
(a) .8
(b) 1.0
(c) 1.25
(d) 1.50
25. If the local pizzeria raises the price of a medium pizza from Rs. 60 to Rs. 100 and quantity
demanded falls from 700 pizzas a night to 100 pizzas a night, the price elasticity of demand
for pizzas is :
(a) .67
(b) 1.5
(c) 2.0
(d) 3.0
26. If electricity demand is inelastic, and electric rates 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.
27. 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.
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(c) small fall in quantity demanded.
(d) small fall in demand.
28. 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 Rs. 100.
(d) None of the above.
29. 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.
30. 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.
31. 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.
32. 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).
9 0 COMMON PROFICIENCY TEST
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(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.
33. Suppose a consumer’s income increases from Rs. 30,000 to Rs. 36,000. As a result, the
consumer increases her purchases of compact discs (CDs) from 25 CDs to 30 CDs. What
is the consumer’s income elasticity of demand for CDs?
(a) 0.5
(b) 1.0
(c) 1.5
(d) 2.0
34. Total utility is maximum when :
(a) marginal utility is zero.
(b) marginal utility is at its highest point.
(c) marginal utility is equal to average utility.
(d) average utility is maximum.
35. 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.
36. The consumer is in equilibrium at a point where the budget line :
(a) is above an indifference curve.
(b) is below an indifference curve.
(c) is tangent to an indifference curve.
(d) cuts an indifference curve.
37. An indifference curve slopes down towards right since more of one commodity and less of
another result in :
(a) same satisfaction.
(b) greater satisfaction.
(c) maximum satisfaction.
(d) decreasing expenditure.
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38. 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 elasticity of substitution between two goods to a consumer is zero.
(d) The total effect of a change in the price of a good on its quantity demanded is called
the price effect.
39. The second glass of lemonade gives lesser satisfaction to a thirsty boy. This is a clear case
of
(a) Law of demand.
(b) Law of diminishing returns.
(c) Law of diminishing utility.
(d) Law of supply.
40. The consumer is in equilibrium when the following condition is satisfied :
MU P
x > x .
(a)
MU P
y y
MU P
x < x .
(b)
MU P
y y
MU P
x = x .
(c)
MU P
y y
(d) None of the above.
41. In the case of a Giffen good, the demand curve will be :
(a) horizontal.
(b) downward-sloping to the right.
(c) vertical.
(d) upward-sloping to the right.
42. 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 different between the maximum amount a person is willing to pay for a good and
its market price.
(d) none of the above.
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43. Which of the following is a property 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 indifference curve.
44. When economists speak of the utility of a certain good, they are referring to
(a) the demand for the good.
(b) the usefulness of the good in consumption.
(c) the satisfaction gained from consuming the good.
(d) the rate at which consumers are willing to exchange one good for another.
45. A vertical supply curve parallel to Y axis implies that the elasticity of supply is :
(a) Zero
(b) Infinity
(c) Equal to one
(d) Greater than zero but less than infinity.
46. 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.
47. An increase in the supply of a good is caused by :
(a) improvements in its technology.
(b) fall in the prices of other goods.
(c) fall in the prices of factors of production.
(d) all of the above.
48. 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.
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49. A horizontal supply curve parallel to the quantity axis implies that the elasticity of supply
is :
(a) zero.
(b) infinite.
(c) equal to one.
(d) greater than zero but less than one.
50. Contraction of supply is the result of :
(a) decrease in the number of producers.
(b) decrease in the price of the good concern.
(c) increase in the prices of other goods.
(d) decrease in the outlay of sellers.
51. Conspicuous goods are also known as
a. prestige goods
b. snob goods
c. veblen goods
d. all of the above
52. The quantity purchased will remain constant irrespective of the change in income. This is
known as
a. negative income elasticity of demand
b. income elasticity of demand less than one
c. zero income elasticity of demand
d. income elasticity of demand is greater than one
53. 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 demand
54. 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
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c. income elasticity of demand is greater than one
d. income elasticity of demand is less than one
55. The luxury goods like jewellery and fancy articles will have
a. low income elasticity of demand
b. high income elasticity of demand
c. zero income elasticity of demand
d. none of the above
56. The 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
57. 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
58. The quantity demanded of a good or service is the amount that
a. consumer plan to buy during a given time period at a given price
b. firms are willing to sell during a given time period at a given price
c. a consumer would like to buy but might not be able to afford
d. is actually bought during a given time period at a given price.
59. Demand is the
a. unlimited wants of consumers
b. entire relationship between the quantity demanded and the price of a good
c. willingness to pay for a good if income is larger enough
d. ability to pay for a good
60. If, as people’s income increases, the quantity demanded of a good decreases, the good is
called
a. a substitute
b. a normal good
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THEORY OF DEMAND AND SUPPLY
c. an inferior good
d. a complement
61. 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
62. 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.
63. Potato chips and popcorn are substitutes. 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
64. Apple juice and orange juice are substitutes in consumption and apple juice and apple
sauce are substitutes in production. If the price of orange juice———————— or the
price of apple sauce ————————————, then the price of apple juice will ———
—————————
a. increases; increases; increase
b. decreases; decreases; increase
c. decreases; increases; decrease
d. increases; decreases; increase
65. An increase in the demand for computers and an increase in the number of sellers of
computers will
a. increase the number of computers bought
b. decrease the price but increase the number of computers bought
c. increase the price of a computer
d. increase the price and the number of computers bought.
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66. 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
67. With a fall in the price of a commodity:
a. consumer’s real income increases
b. consumer’s real income decreases
c. there is no change in the real income of the consumer
d. none of the above
68. With an increase in the price of diamond, its demand also increases. This is because it is a:
a. substitute good
b. complementary good
c. conspicuous good
d. none of the above
69. The goods that exhibit direct price-demand relationship are called:
a. Giffen goods
b. Complementary goods
c. Substitute goods
d. None of the above
70. In Economics when demand for a commodity increases with a fall in its price it is known
as:
a. contraction of demand
b. expansion of demand
c. no change in demand
d. none of the above
71. 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
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
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72. Supply is the
a. limited resources that are available 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.
73. 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.
74. If the price of a video rental is below the equilibrium price, the quantity supplied is ———
———————— than the quantity demanded. If the price of video rentals is above the
equilibrium price, the quantity supplied is ——————— than the quantity demanded.
a. less; greater
b. greater; greater
c. greater; less
d. less; less
75. An increase in the number of sellers of bikes will increase the
a. the price of a bike
b. demand for bikes
c. the supply of bikes
d. demand for helmets
76. If the supply of bottled water decreases, the equilibrium price ———————————
and the equilibrium quantity ——————————————
a. increases ; decreases
b. decreases; increases
c. decreases; decreases
d. increases; increases
77. An increase in the demand for cameras and an increase in the number of sellers of cameras
will
a. increase the number of cameras bought
b. decrease the price but increase the number of cameras bought
9 8 COMMON PROFICIENCY TEST
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c. increase the price of cameras
d. increase the price and the number of cameras bought.
78. If good growing conditions increases the supply of strawberries and hot weather increases
the demand for strawberries, the quantity of strawberries bought
a. increases and the price might rise, fall or not change
b. doesn’t change but the price rises
c. doesn’t change but the price falls
d. increases and the price rises.
79. Comforts lies between the
a. inferior goods and necessaries
b. luxuries and inferior goods
c. necessaries and luxuries
d. none of the above
80. In a very short period the supply
a. can be changed
b. can not be changed
c. can be increased
d. none of the above
81. A lower supply curve indicates
a. Smaller supply
b. larger supply
c. constant supply
d. none of the above
82. When supply curve moves to rights it means
a. supply increases
b. supply decreases
c. supply remains constant
d. none of the above
83. 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
GENERAL ECONOMICS 9 9
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THEORY OF DEMAND AND SUPPLY
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
84. 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
85. Elasticity of supply is zero means
a. perfectly inelastic supply
b. perfectly elastic supply
c. imperfectly elastic supply
d. none of the above
86. 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
87. If the quantity supplied is exactly equal to the relative change in price then the elasticity of
supply is
a. less than one
b. greater than one
c. one
d. none of the above
88. The price of a commodity decreases from Rs. 6 to Rs. 4 and his demand for goods increases
from 10 units to 15 units, Find the coefficient of price elasticity.
a. 1.5
b. 2.5
c. -1.5
d. 0.5
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89. The supply function is given as Q= -100 + 10P. Find the elasticity using point method,
when price is Rs. 15.
a. 4
b. -3
c. -5
d. 3
ANSWERS
1. d 2. b 3. c 4. b 5. b 6. b
7. b 8. c 9. c 10. b 11. b 12. b
13. b 14. c 15. d 16. c 17. a 18. b
19. d 20. b 21. b 22. b 23. c 24. d
25. d 26. b 27. a 28. c 29. b 30. a
31. b 32. c 33. b 34. a 35. c 36. c
37. a 38. c 39. c 40. c 41. d 42. c
43. a 44. c 45. a 46. d 47. d 48. b
49. b 50. b 51. d 52. c 53. b 54. d
55. b 56. b 57. c 58. a 59. b 60. c
61. c 62. b 63. a 64. a 65. d 66. d
67. a 68. c 69. a 70. b 71. c 72. c
73. b 74. a 75. c 76. a 77. d 78. a
79. c 80. b 81. b 82. a 83. a 84. c
85. a 86. a 87. c 88. c 89. d
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