Economics - Supply and Demand MCQ

1 1. Normally a demand curve will have the shape:

A Horizontal

B Vertical

C Downward sloping

D Upward sloping

Answer: Downward sloping

2. Which one is the assumption of law of demand?

A Price of the commodity should not change

B Quantity demanded should not change

C Prices of substitutes should not change

D Demand curve must be linear

Answer: Prices of substitutes should not change

3. The elasticity of demand of durable goods is:

A Less than unity

B Greater than unity

C Equal to unity

D Zero

Answer: Greater than unity

4 Which among the following statement is INCORRECT?

A On a linear demand curve, all the five forms of elasticity can be depicted’

B If two demand curves are linear and intersecting each other then coefficient of elasticity would be same on different demand curves at the point of intersection.

C If two demand curves are linear, and parallel to each other then at a particular price the coefficient of elasticity would be different on different demand curves

D The price elasticity of demand is expressed in terms of relative not absolute, changes in Price and quantity demanded’

Answer: If two demand curves are linear and intersecting each other then coefficient of elasticity would be same on different demand curves at the point of intersection.

5. 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

Answer: Infinite

6. In the short run, when the output of a firm increases, its average fixed cost:

A Remains constant

B Decreases

C Increases

D First decreases and then rises

Answer: Decreases

7. What is meant by Autarky in international trade?

A Monopoly in international trade

B Imposition of restrictions in international trade

C Removal of all restrictions from international trade

D The idea of self sufficiency and no international trade by a country

Answer: The idea of self sufficiency and no international trade by a country

8 .Cost push inflation occurs because of:

A Wage push

B Profit push

C Both A and B

D Ineffective policies of the government

Answer: Both A and B

9. When demand is perfectly inelastic, an increase in price will result in:

A A decrease in total revenue

B An increase in total revenue

C No change in total revenue

D A decrease in quantity demanded

Answer: An increase in total revenue

10. Other things equal, if a good has more substitutes, its price elasticity of demand is:

A Larger

B Smaller

C Zero

D Unity

Answer: Larger

11. If elasticity of demand is very low it shows that the commodity is:

A A necessity

B A luxury

C Has little importance in total budget

D (a) and (c) above

Answer: A necessity

12. If demand is unitary elastic, a 25% increases in price will result in:

A 25% change in total revenue

B No change in quantity demanded

C 1% decrease in quantity demanded

D 25% decrease in quantity demanded

Answer: 25% decrease in quantity demanded

13. Demand for a commodity refers to:

A Need for the commodity

B Desire for the commodity

C Amount of the commodity demanded at a particular price and at a particular time

D Quantity demanded of that commodity

Answer: Amount of the commodity demanded at a particular price and at a particular time

14. 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 Increase

B Decrease

C Remain the same

D Become zero

Answer: Increase

15 An individual demand curve slopes downward to the right because of the:

A Working of the law of diminishing marginal utility

B substitution effect of decrease in price

C income effect of fall in Price

D All of the above

Answer: All of the above

16. The cost of one thing in terms of the alternative given up is called:

A Real cost

B Production cost

C Physical cost

D opportunity cost

Answer: opportunity cost

17. The following is the direct tax among:

A House tax

B Entertainment tax

C Service tax

D Value Added tax

Answer: House tax

18. Which among below is NOT a correct statement?

A Bretton Woods conference gave birth to two international organizations-

B Theory of Absolute Advantage in international trade is given by Adam Smith’

C Pure and perfect competition is the same market structures.

D Mint par theory of exchange rate determination is applicable in countries under gold standard.

Answer: Pure and perfect competition is the same market structures.

19. The Heckscher-Ohlin approach to international trade provides important insights, in

A Gains from trade

B Effect of trade on production and consumption

C Effect of trade on the incomes of production factors

D All of the above

Answer: All of the above

20. The elasticity of demand of durable goods is:

A More elastic

B Less elastic

C Zero elastic

D Infinite elastic

Answer: More elastic

21. If demand is inelastic, a change in the price:

A Will change the quantity in same direction

B Will change total revenue in same direction

C Will change total revenue in the opposite direction

D Will not change quantity

Answer: Will change total revenue in same direction

11. Rahul has a special taste for college canteen is hotdogs. The owner of the canteen doubles the prices of hotdogs. Rahuldid not respond to the increase in prices and kept on demanding the same quantity of hotdogs. His demand for hotdogs is:

A Perfectly elastic

B Perfectly inelastic

C Elastic

D Less elastic

Answer: Perfectly inelastic

23. Income elasticity of demand is defined as the responsiveness of:

A Quantity demanded to a change in income

B Quantity demanded to a change in price

C Price to a change in income

D Income to a change in quantity demanded

Answer: Quantity demanded to a change in income

24. Assume that consumer’s income and the number of sellers in the market for good X both falls. Based on this information, we can conclude with certainty that the equilibrium:

A Price will decrease

B Price will increase

C Quantity will increase

D Quantity will decrease

Answer: Quantity will decrease

25. Which among the following is a cause of inflation?

A Deficit financing

B Rise in external loans

C Unfavourable balance of payment

D A hike in the CRR by the central bank of the country

Answer: Deficit financing

26. The capital that is consumed by an economy or a firm in the production process is known as:

A Capital loss

B Production cost

C Dead-weight loss

D Depreciation

Answer: Depreciation

27. The following are causes of shift in demand EXCEPT the one:

A Change in income

B Change in price

C Change in fashion

D Change in prices of substitutes

Answer: Change in price

28. If quantity demanded is completely unresponsive to changes in price, demand is:

A Inelastic

B Unit elastic

C Elastic

D Perfectly inelastic

Answer: Perfectly inelastic

29. Law of demand shows relation between:

A Income and price of commodity

B Price and quantity of a commodity

C Income and quantity demand

D Quantity demanded and quantity supplied

Answer: Price and quantity of a commodity

30. Irrespective of price, Sofia always spends Rs. 100 a week on ice cream, we conclude that:

A Elasticity of demand is 0

B Elasticity of demand is 1

C Elasticity of demand is infinite

D The law of demand has been violated

Answer: Elasticity of demand is 1

Questions

31 When cross elasticity of demand is a large positive number, one can conclude that:

A The good is normal

B The good is inferior

C The good is a substitute

D The good is a complement

Answer: The good is a substitute

32 Price and demand are positively correlated in case of:

A Necessities

B Comforts

C Giffen goods

D Luxuries

Answer: Giffen goods

33 The supply of a good refers to:

A Stock available for sale

B Total stock in the warehouse

C Actual Production of the good

D Quantity of the good offered for sale at a particular price per unit of time

Answer: Quantity of the good offered for sale at a particular price per unit of time

34 The economist’s objections to monopoly rest on which of the following grounds?

A There is a transfer of income from consumers to the monopolist

B There is welfare loss as resources tend to be misallocated under monopoly

C Only A is correct

D Both A and B are correct

Answer: Both A and B are correct

35 In which of the following market structure is the degree of control over the price of its product by a firm very large?

A Imperfect competition

B Perfect competition

C Monopoly

D In A and B both

Answer: Monopoly

36 Which among the following is not a function of International Monetary Fund?

A It serves a medium term and long term credit institution’

B It provides a mechanism for improving short term balance of payments position’

C It provides machinery for international consultations’

D It provides reservoir of the currencies of the member countries and enables members to borrow one another’s currency’

Answer: It serves a medium term and long term credit institution’

37 Which among the following is NOT correct?

A Floating exchange rate system works on the market mechanism

B Floating exchange rate breeds uncertainties and speculation

C Economic and political factors and value judgments influence the choice of the exchange rate system

D The system of floating exchange rate requires comprehensive government intervention

Answer: The system of floating exchange rate requires comprehensive government intervention

38. Which of the following is also known as International Bank for Reconstruction and Development?

A Asian Development Bank

B World Bank

C Reserve Bank of India

D International Monetary Fund

Answer: World Bank

39. ‘Infant industry argument’ in international trade is given in support of:

A Granting Protection

B Free trade

C Encouragement to export oriented small and tiny industries

D None of the above

Answer: Granting Protection