Question 1

The demand curve for Giffen's goods:&#10;A)Vertical&#10;B)Horizontal&#10;C)Negative slope&#10;D)Positive slope

Accepted Answer

Giffen goods have an upward-sloping demand curve, which means as the price increases, the quantity demanded also increases, contrary to the typical law of demand. This occurs because the income effect of a price increase for a Giffen good outweighs the substitution effect, leading consumers to buy more of the good even as its price rises.

Question 2

Income elasticity of demand for inferior goods is:&#10;A)Negative&#10;B)Positive&#10;C)Zero&#10;D)Unity

Accepted Answer

Income elasticity of demand for inferior goods is negative because as income increases, the demand for inferior goods typically decreases.

Question 3

The change in demand is due to the change in :&#10;A)Income&#10;B)Own price&#10;C)Prices of related products&#10;D)Expectations

Accepted Answer

Own price&#10;

Question 4

A market:&#10;A)Necessarily refers to a meeting place between buyer and sellers&#10;B)Does not necessarily refers to a meeting place between buyer and sellers&#10;C)Extends over the entire country&#10;D)Extends over a city

Accepted Answer

A market does not necessarily refer to a physical meeting place between buyers and sellers; it can also be virtual or conceptual, encompassing any arrangement that facilitates the exchange of goods or services.

Question 5

A fall in the price of the commodity holding everything else constant results in:&#10;A)Increase in demand&#10;B)Decrease in demand&#10;C)Increase in quantity demanded&#10;D)Decrease in quantity demanded

Accepted Answer

A fall in the price of a commodity, holding everything else constant, leads to an increase in the quantity demanded, not a change in demand itself. Demand refers to the entire relationship between price and the quantity of a good that consumers are willing to purchase at various prices, whereas quantity demanded refers to the specific amount of a good consumers are willing to buy at a specific price.

Question 6

When both the price of a substitute and the price of complement of X rises, the demand for X:&#10;A)Rises&#10;B)Falls&#10;C)Remains unchanged&#10;D)All of the above is possible

Accepted Answer

When the price of a substitute for X rises, demand for X might increase as consumers switch to X, finding it relatively cheaper. Conversely, when the price of a complement rises, demand for X might decrease because the combined cost of X and its complement becomes higher, making them less attractive. Therefore, the overall effect on the demand for X can vary, making all of the above outcomes possible depending on the relative magnitudes of these changes and consumer preferences.

Question 7

If the percentage increase in the quantity demanded of a commodity is smaller than the percentage fall in its price, the coefficient of price elasticity:&#10;A)Greater than one&#10;B)Equal to one&#10;C)Smaller than one&#10;D)Zero

Accepted Answer

The coefficient of price elasticity is smaller than one in this case, indicating inelastic demand, where the percentage change in quantity demanded is less than the percentage change in price.

Question 8

A fall in the price of the commodity whose demand curve is a rectangular hyperbola causes total expenditure on the commodity:&#10;A)Increases&#10;B)Decreases&#10;C)Remains unchanged&#10;D)None of the above

Accepted Answer

The demand curve of a rectangular hyperbola represents a situation where the price elasticity of demand is equal to one (unitary elasticity). In this case, any change in price leads to a proportional change in quantity demanded such that the total expenditure (price multiplied by quantity) remains unchanged.

Question 9

An increase in the price of the commodity when demand is inelastic causes the total expenditure of consumers of the commodity to:&#10;A)Increase&#10;B)Decrease&#10;C)Remains unchanged&#10;D)Any of the above

Accepted Answer

The answer of An increase in the price of the...

Question 10

A negative income elasticity of demand for a commodity indicates that as income falls, the amount of the commodity purchased:&#10;A)Rises&#10;B)Falls&#10;C)Remains unchanged&#10;D)None of the above

Accepted Answer

A negative income elasticity of demand indicates that the commodity is an inferior good, meaning that as income falls, consumers buy more of it.

Question 11

If the amount of the commodity purchased remains unchanged when the price of another commodity changes, the cross elasticity of demand between them will be:&#10;A)Positive&#10;B)Negative&#10;C)Zero&#10;D)One

Accepted Answer

The answer of If the amount of the commodity purchased...

Deck 17: Economics Questions on Demand and Supply