Demand And Elasticity of Demand

Time Allowed : 50 mins Maximum Marks : 50

Section A

Question No. 1 to 4 are based on the given text. Read the text carefully and [4]
answer the questions:

Buyers preferences between diesel and petrol cars are significantly influenced by
the relative prices of these fuels. In India, people have a higher preference for
diesel cars, despite their higher price compared with petrol cars. Because diesel
has been much cheaper than petrol. However, in the recent past, the gap between
diesel and petrol price has tended to shrink. Accordingly, the buyer’s preferences
are likely to change. The low price differential between petrol and diesel is
expected to induce the buyers to shift from diesel cars to petrol cars.

1 When the price of petrol goes up, the demand for a car will________.

a) Increase

b) stable

c) fall

d) rise

2 Petrol and Diesel are ________ goods.

a) Normal goods

b) complementary

c) substitute

d) both substitute and complementary

3 If two goods are complementary, then rise in the price of one results in:

a) rise in demand for both

b) fall in demand for the other.

c) constant demand of the other

d) rise in demand for the other.

4 How are the two goods related when, as a result of rise in the price of one,
 demand for other increases?

a) complementary goods

b) normal goods

c) inferior goods

d) substitute goods

Question No. 5 to 8 are based on the given text. Read the text carefully and [4]
answer the questions:

Elasticity refers to the degree of responsiveness in supply or demand in relation

to changes in price. If a curve is more elastic, then small changes in price will
cause large changes in the quantity consumed. If a curve is less elastic, then it will
take large changes in price to effect a change in quantity consumed. Graphically,
elasticity can be represented by the appearance of the supply or demand curve. A
more elastic curve will be horizontal, and a less elastic curve will tilt more
vertically. When talking about elasticity, the term "flat" refers to curves that are
horizontal; a flatterelastic curve is closer to perfectly horizontal. At the extremes,
a perfectly elastic curve will be horizontal, and a perfectly inelastic curve will be
vertical.

Hint: You can use perfectly inelastic and perfectly elastic curves to help you
remember what inelastic and elastic curves look like: an Inelastic curve is more
vertical, like the letter I. An Elastic curve is flatter, like the horizontal lines in the
letter E.

5 At higher price level, the elasticity of demand for the commodity will be ________.

a) Lower

b) Unitary

c) Higher

d) stable

6 Elasticity of demand in case of necessaries is ________.

a) equal

b) Elastic

c) All of these

d) Inelastic

7 When demand curve is parallel to the x - axis, the elasticity of demand is:
 a) unity

b) infinity

c) zero

d) greater than unity

8 The demand for goods like sugar and tea is usually:

a) perfectly elastic

b) elastic

c) inelastic

d) perfectly inelastic

9 Law of demand is violated when: [1]

a) income effect is negative

b) negative income effect is greater than substitution effect

c) substitution effect is negative

d) negative income effect is less than substitution effect

1 Market demand curve is obtained by summation of the individual demand [1]

0 curves.

a) vertical

b) Both vertical and horizontal

c) horizontal

d) Straightly

1 An increase in the price of electricity will cause the demand for electric [1]
1 appliances to:

a) Increase

b) rise

c) remain the same

d) fall

1 Specific quantity to be purchased against a specific price of the commodity is [1]

2 called:
 a) movement along the demand curve

b) quantity demanded

c) shift in demand curve

d) demand

1 An increase in demand can result from: [1]

3
a) A reduction in the price of substitutes

b) An increase in income

c) A decline in the market price

d) An increase in the price of complements

1 A rise in the income of the consumer leads to a fall in the demand for commodity [1]
4 ‘x’. What type of good is commodity ‘x’?

a) Snob goods

b) Normal good

c) Inferior good

d) Necessity good

1 One factor that causes a righttward shift of the demand curve out of the following [1]
5 is

a) Rise in the price of complementary goods

b) Rise in income

c) Fall in the price of substitute goods

d) Fall in income

1 Price and demand are positively correlated in case of: [1]

6
a) Necessities

b) Luxuries

c) Giffen goods

d) Comforts

1 When income of the consumer falls the impact on price - demand curve of an [1]
7 inferior goods is: (choose the correct alternative)
 a) There is upward movement along the curve

b) There is downward movement along the curve

c) Shifts to the right

d) Shifts to the left

1 Demand Curve generally slopes: [1]

8
a) Downward from left to right

b) Parallel to Y - axis

c) Upward from left to right

d) Parallel to X - axis

1 A fall in income of the consumer (in case of normal goods) will cause: [1]
9
a) downward movement on the demand curve

b) leftward shift of the demand curve

c) rightward shift of the demand curve

d) upward movement on the demand curve

2 Which of the following is an example ofcomplementary goods? [1]

0
a) None of these

b) Tea and coffee

c) Rice and wheat

d) Coke and Pepsi

2 Which of the following pairs represents substitute goods? [1]

1
a) Juice and cold drink

b) Bread and butter

c) Car and petrol

d) All of these

2 How are the two goods (apples and oranges) related when, as a result of rise in [1]
2 the price of apples, demand for oranges increases?

a) Inferior goods
 b) Normal goods

c) Substitute goods

d) Complementary goods

2 Change in quantity demanded of a commodity due to change in its own price, [1]
3 other things remaining constant, is called:

a) substitution effect

b) cross price effect

c) price effect

d) income effect

2 Shift in demand curve means: [1]

4
a) fall in demand due to rise in own price of the commodity

b) change in demand due to factors other than own price of the commodity

c) change in demand due to own price

d) rise in demand due to fall in own price of the commodity

2 Which one is the assumption of the law of demand? [1]

5
a) Price of the commodity should not change

b) Income of the consumer should not change

c) Quantity demanded should not change

d) Income of the consumer should change

2 For what type of good does demand fall with a rise in income levels of [1]
6 households?

a) Inferior goods

b) Substitutes

c) Necessities

d) Luxuries

2 Law of demand must fail in case of: [1]

7
a) inferior goods
 b) Consumer goods

c) Giffen goods

d) normal goods

2 A fall in own price of the commodity leads to: [1]

8
a) decrease in real income of the consumer

b) increase in real income of the consumer

c) increase in real income of the consumer and increase in purchasing power of

the consumer

d) increase in purchasing power of the consumer

2 Inferior goods are those whose income effect is: [1]

9
a) positive

b) negative

c) zero

d) Direct

3 When demand curve is parallel to X - axis, elasticity of demand is: [1]

0
a) greater than unity

b) unity

c) infinity

d) zero

3 A state government wants to increase the taxes on cigarettes to increase tax [1]
1 revenue. This tax would only be effective in raising new tax revenues if the price
elasticity of demand is:

a) perfectly elastic

b) unity

c) inelastic

d) elastic

3 Elasticity is greater than unity for: [1]

2
a) complementary goods
 b) comforts

c) necessaries

d) luxuries

3 Which of the following is a formula for measuring the elasticity of demand? [1]
3
a) None of these
ProportionateC h angeinPrice
b)
Propo rtionateC h angeinDemand
ProportionateC h angeinDemand
c)
ProportionateC h angeinPrice
C h angeinDemand
d)
C h angeinPrice

3 If the government is seeking to raise revenue by increasing the rate of indirect [1]
4 tax on a product, it will be most successful where the price elasticity of demand
is:

a) relatively elastic

b) relatively inelastic

c) perfectly elastic

d) perfectly inelastic

3 Demand for a goods is termed inelastic through the expenditure approach when [1]
5 if (Choose the correct alternative)

a) Price of the goods rises, expenditure on it falls.

b) Price of the goods falls, expenditure on it rises

c) Price of the goods falls, expenditure on it falls

d) Price of the goods falls, expenditure on it remains unchanged

3 If an increase in the supply of a product results in a decrease in the price, but no [1]
6 change in the actual quantity of the product exchanged, then:

a) the price elasticity of supply is zero

b) the price elasticity of supply is infinite

c) the price elasticity of demand is zero

 d) the price elasticity of demand is unitary

3 As you move down a straight - line - downward - sloping demand curve, the [1]
7 price elasticity of demand:

a) remains constant because the slope is constant

b) becomes more inelastic

c) becomes less elastic

d) becomes more elastic

3 The expenditure on a goods would change in the opposite direction as the price [1]
8 changes only when demand is:

a) inelastic

b) perfectly inelastic

c) elastic

d) unitary elastic

3 In case of E❑d = ∞ , demand curve is: [1]

9
a) downward sloping curve

b) a horizontal straight line

c) a vertical straight line

d) upward sloping curve

4 The price of Momos increase by 25% and the quantity demanded falls by 30% [1]
0 this indicates that demand for Momos is:

a) Elastic

b) Inelastic

c) Perfectly elastic

d) Unitary elastic

4 When the percentage change in demand is less than the percentage change in [1]
1 price, demand is:

a) less than unitary elastic

b) perfectly inelastic
 c) more than unitary elastic

d) perfectly elastic

4 Due to a 10 percent fall in the price of a good, its demand rises from 400 units to [1]
2 450 units. Calculate its price elasticity of demand.

a) 2.25

b) 4.25

c) 3.25.

d) 1.25

4 Due to a rise in the price of a good by Rs. 5, its demand fallsfrom 100 units to 95 [1]
3 units. Its price elasticity of demand is ( - ) 1.2. Calculate the price before the
change.

a) Rs. 20

b) Rs. 120

c) Rs, 100

d) Rs. 240

4 What is the most likely effect of the development of television, videocassette [1]
4 players, and rental movies on the movie theater industry?

a) decreased costs of producing movies

b) increased demand for movie theater tickets

c) movie theater tickets become an inferior good

d) increased price elasticity of demand for movie theater tickets

4 In the case of an inferior good, the income elasticity of demand is: [1]
5
a) Infinite

b) Zero

c) Positive

d) Negative

4 The price elasticity of demand for a popular sporting event is 2. If the price of a [1]
6 ticket to this event increases by 10 percent, the quantity of tickets demanded
will:
 a) increase by 10 percent

b) increase by 20 percent

c) decrease by 10 percent

d) decrease by 20 percent

4 A consumer buys 50 units of a good at Rs. 4/ - per unit. When its price falls by 25 [1]
7 percent its demand rises to 100 units then the price elasticity of demand will be

a) 3

b) 6

c) 4

d) 2

4 A consumer demands 5 units of a commodity at the price of₹ 4 per unit. He [1]
8 demands 10 units when the price falls to ₹ 3 per unit. Price elasticity of demand
is equal to:

a) 4

b) 1.5

c) 3

d) 2

4 Suppose the price elasticity of demand for a good is – 0.2. How will the [1]
9 expenditure on the good be affected if there is a 10 % increase in the price of the
good?

a) Expenditure will not change

b) Expenditure will increase

c) Expenditure will decrease

d) Expenditure will remain same

5 Which of the following will have elastic demand? [1]

0
a) Salt

b) School uniform

c) Fruits
d) Medicine