Question 1

A fall in income of the consumer, other things being equal, causes:&#10;A)Increase in demand&#10;B)Decrease in demand&#10;C)Increase in quantity demanded&#10;D)Decease in quantity demanded

Accepted Answer

Increase in demand&#10;

Question 2

Which of the following causes an increase in supply:&#10;A)Fall in price of inputs&#10;B)Increase in number of producers&#10;C)Decrease in the price of production substitutes&#10;D)All of the above

Accepted Answer

All the options listed contribute to an increase in supply. A fall in the price of inputs makes production cheaper, encouraging producers to supply more. An increase in the number of producers in the market typically leads to more supply. Lastly, a decrease in the price of production substitutes makes the original product more attractive to produce, thus increasing its supply.

Question 3

A movement down the given demand curve shows:&#10;A)Increase in demand&#10;B)Decrease in demand&#10;C)Extension in demand&#10;D)Contraction in demand

Accepted Answer

A movement down the demand curve represents an extension in demand, which occurs when the quantity demanded increases due to a decrease in price, while other factors remain constant.

Question 4

Which of the following results in an increase in an increase in demand:&#10;A)Fall in prices of substitutes&#10;B)Increase in price of complementary goods&#10;C)Fall in consumer's income&#10;D)None of the above

Accepted Answer

None of the options listed would result in an increase in demand. A fall in the price of substitutes would decrease demand for the original good, an increase in the price of complementary goods would decrease demand, and a fall in consumer's income would generally decrease demand for normal goods.

Question 5

An increase in supply means:&#10;A)Movement down given supply curve&#10;B)Movement upward given supply curve&#10;C)Leftward shift in supply curve&#10;D)Rightward shift in supply curve

Accepted Answer

An increase in supply means that at the same price, more of the good or service is available, which is represented by a rightward shift in the supply curve.

Question 6

An increase in market supply, demand remaining the same causes:&#10;A)Increase in equilibrium price&#10;B)Decrease in equilibrium quantity&#10;C)Decrease in equilibrium price and increase in equilibrium quantity&#10;D)Both equilibrium price and quantity rises

Accepted Answer

An increase in market supply, with demand remaining constant, leads to a decrease in equilibrium price due to the surplus of goods. At the same time, the equilibrium quantity increases because the lower price encourages more consumers to buy the product.

Question 7

Which one of the following elasticities takes the average of prices and quantities:&#10;A)Point elasticity of demand&#10;B)Arc elasticity of demand&#10;C)Income elasticity of demand&#10;D)Cross elasticity of demand

Accepted Answer

Arc elasticity of demand calculates elasticity over a range of prices and quantities by taking the average of the starting and ending prices and quantities, making it distinct from point elasticity which measures elasticity at a specific point.

Question 8

When demand curve is rectangular hyperbola, the value of price elasticity of demand will be:&#10;A)Zero&#10;B)One&#10;C)Greater than one&#10;D)Infinity

Accepted Answer

When the demand curve is a rectangular hyperbola, it implies that the price elasticity of demand is constant and equal to one at all points along the curve. This means that a given percentage change in price leads to an equal percentage change in quantity demanded, indicating unit elasticity.

Deck 7: Supply and Demand Elasticity