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 leads to more supply in the market. A decrease in the price of production substitutes makes the original product more attractive to produce, thus increasing its supply.

Question 3

Which of the following Elasticities measure movement along a curve, rather than a shift in the curve:&#10;A)Price elasticity of demand&#10;B)Income elasticity of demand&#10;C)Cross elasticity of demand&#10;D)None of the above

Accepted Answer

Price elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in its price, indicating movement along the demand curve rather than a shift in the curve itself.

Question 4

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 given demand curve indicates an extension in demand, which means that more of a product is being purchased at a lower price, assuming other factors remain constant.

Question 5

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 directly result in an increase in demand. A fall in prices of substitutes could lead to a decrease in demand for the product in question, an increase in the price of complementary goods could decrease demand for both goods, and a fall in consumer's income generally decreases demand for normal goods.

Question 6

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 producers are willing and able to sell more of a good at each price, which is represented by a rightward shift in the supply curve.

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. This contrasts with point elasticity, which calculates elasticity at a specific point on the demand curve. Income elasticity and cross elasticity do not involve averaging prices and quantities in their calculations.

Question 8

As a result of a fall in the price total expenditure on the commodity decreases, the coefficient of elasticity will be:&#10;A)Equal to one&#10;B)Greater than one&#10;C)Less than one&#10;D)Cannot say

Accepted Answer

When the total expenditure on a commodity decreases as a result of a fall in price, it indicates that the demand for the commodity is inelastic. This is because consumers do not increase their quantity demanded by enough to offset the decrease in price, leading to a decrease in total expenditure. The coefficient of elasticity in this case is less than one.

Question 9

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 percentage changes in price lead to equal percentage changes in quantity demanded, indicating unit elasticity.

Question 10

On a linear demand curve, the coefficient of price elasticity is unity, then the value of MR will be:&#10;A)Positive&#10;B)Zero&#10;C)Negative&#10;D)One

Accepted Answer

When the coefficient of price elasticity is unity (equal to 1), it means that the percentage change in quantity demanded is exactly equal to the percentage change in price. In this scenario, the marginal revenue (MR) is zero because the total revenue remains constant as the price changes.

Deck 18: Elasticity of Supply and Demand