ECO 162: Microeconomics Demand and Supply

CHAPTER 2: DEMAND AND SUPPLY

MULTIPLE CHOICE

DEMAND

1) The demand curve for a product will tend to shift to the right when there is
A. A decrease in the price of a complementary product
B. An increase in the supply of a substitute product
C. A fall in the price of the product in the world market
D. An improvement in technology which lowers cost

2) If pen and ink are complementary goods, an increase in the price of pen will result in
A. A decrease in the demand of ink.
B. An increase in the demand of ink
C. An increase in the price of ink
D. No change in either the price or sales of ink.

3) If two goods are substitutes, an increase in the price of one good will
A. Decrease the quantity demanded for the other good.
B. Decrease the demand for the other good.
C. Increase the demand for the other good.
D. Increase the quantity demanded for the other good.

4) In the market of tea, we can consider

A. Milo as complementary good.
B. Sugar as complementary good.
C. Milk as substitutes good.
D. Milo as unrelated good.

5) Classification of goods in Islam is based on the

A. Value of goods.
B. Prices of goods.
C. Needs and wants of human beings.
D. Purchasing power of society.

6) Whenever the price of good Z decreases, the demand for good W increases. Goods
W and Z should be
A. normal goods.
B. inferior goods.
C. substitutes.
D. complements.
ECO 162: Microeconomics Demand and Supply

7) An economic theory claims that an increase in the price of petrol will cause petrol
purchases to fall, ceteris paribus. The phrase "ceteris paribus" means that
A. consumers' need for petrol remains the same regardless of the price.
B. the petrol price must be adjusted for inflation.
C. petrol is considered a luxury good.
D. other relevant factors like consumer income must be held constant.

8) Demand for inputs is a derived demand because

A. it is derived from the need for income.
B. it corresponds to the derived supply of the inputs.
C. the demand for output leads producers to demand inputs used to produce
finished product.
D. of the diminishing marginal product of inputs.

9) If the price of a good decreases, we would expect

A. quantity demanded to increase.
B. quantity supplied to increase.
C. supply to increase.
D. demand to increase.

10) If the price of good A decreases, the demand curve for its close substitute will
A. shift to the left.
B. shift to the right.
C. remain unchanged.
D. cannot be determined.

11) As a student you normally purchase 6 packages of hot dogs a month. You will
graduate from college in December and start a new job in January. You have no
plans to purchase hot dogs in January. For you, hot dogs are
A. a substitute good.
B. a normal good.
C. an inferior good.
D. a law-of-demand good.

12) A lower price increases the quantity demanded because

A. the purchasing power of individuals decrease.
B. the financial assets of individuals decrease.
C. individuals buy more of the product and less of a substitute.
D. individuals buy less of the product and more of the substitute.

13) A point on the demand curve indicates

A. the ratio of the selling price to the buying price.
B. a particular price and the corresponding quantity demanded by consumers.
C. a combination of two commodities which buyers will choose at given prices.
D. a situation where the buying and selling decisions of consumers and producers are
consistent.

14) If service stations raise the price of petrol and experience a decrease in demand for
automobile tyres, then petrol and tyres are
A. substitutes.
ECO 162: Microeconomics Demand and Supply

B. unrelated goods.
C. inferior goods.
D. complements.

15) An increase in consumer's money income will shift

A. the budget to the right.
B. the budget to the left.
C. the indifference curves to the right.
D. the indifference curves to the left.

16) The demand curve for good H is downward sloping, so an increase in its price will
cause
A. an upward movement along the demand curve.
B. a downward movement along the demand curve.
C. a rightward shift of the demand curve.
D. the demand curve to remain unchanged.

17) If buyers expect the share prices to fall next week, today's demand for the share in Bursa
Malaysia will
A. decrease and the equilibrium price will rise.
B. increase and the equilibrium price will rise.
C. decrease and the change in the equilibrium price will be ambiguous.
D. decrease and the equilibrium price will fall.

18) If the price of a good increases, the demand curve for the good's close substitute will
A. shift to the right.
B. shift to the left.
C. remain unchanged.
D. cannot be determined.

19) Which of the following is held constant in the law of demand?

A. Price of the good.
B. Quantity.
C. Income.
D. Only A and B.

20) If the demand for a pair of Brand X shoes falls as income rises, then Brand X shoes is
A. a normal good.
B. an inferior good.
C. a substitute good.
D. a complementary good.

21) A leftward shift of leather shoes supply curve might be caused by

A. an improvement in the relevant technique of production.
B. a decline in the prices of inputs.
C. a decrease in consumer incomes.
D. exit of some firms in that industry.
ECO 162: Microeconomics Demand and Supply

22) If the demand for VCD decreases as income decreases, VCD is

A. a normal good.
B. an inferior good.
C. a substitute good.
D. a complementary good.

23) Dharuriyyah and Kamaliyyah goods are respectively

A. necessity and luxury goods.
B. inferior and luxury goods.
C. comfort and luxury goods.
D. necessity and comfort goods.

24) Which of the following will not influence demand?

A. An increase in consumers’ preference for the good.
B. A reduction of the good’s price.
C. An increase in consumer’s income.
D. A reduction in the price of a complimentary good.

25) If demand for a good increases as income decreases, this good is

A. a normal good.
B. a luxury good.
C. a Giffen good.
D. a necessity good.

26) Which of the following would cause the demand curve of clothes to shift to the right?
A. Price of clothes decreases.
B. Price of cotton increases.
C. Price of clothes increases.
D. Consumers’ income increases.

29) Which of the following statement is correct in the study of economics?

A. Demand can be defined as a desire to buy goods.
B. We can get demand curve by adding up all the quantities demanded by consumers in the
market for a product.
C. Law of demand states that when price increase, the amount demanded will rise and when
price decreases, the amount demanded will fall.
D. Demand curve is a graph of the relationship between quantity demanded of a good and its
price when all other influences on buying plans remain the same.

30) If the demand for ‘harum manis’ mango rises as income rises, ‘harum manis’ mango is
A. a normal good
B. a necessity good
C. a substitute good
D. an inferior good
ECO 162: Microeconomics Demand and Supply

ESSAY QUESTIONS

1) Explain the differences between a movement along a demand curve and a shift in demand
curve using diagrams.
(10 arks)

2) Assume the price of wheat increases. How will it affect the

i) demand for rice,
ii) supply for roti canai.

Use separate diagrams to illustrate your answer. (10 marks)