0

Elasticity of Demand

Description: Micro-economics
Number of Questions: 15
Created by:
Tags: Micro-economics Law of Demand and Elasticity of Demand Theory of Demand and Supply
Attempted 0/15 Correct 0 Score 0

When consumer income rises, demand for Giffen goods

  1. decreases

  2. rises

  3. becomes zero

  4. is infinite

  5. is negative


Correct Option: A
Explanation:

If a consumer has more money to spend, he would prefer a good quality product, so the demand for inferior goods will decrease.

The price of potatoes falls from Rs. 30 to Rs. 20 and potato growers supply the same amount to the shops. The price elasticity of supply is

  1. perfectly inelastic

  2. less elastic

  3. unitary elastic

  4. impossible to calculate

  5. highly elastic


Correct Option: A
Explanation:

When the supply does not change with the change in price, PES is perfectly inelastic or zero. In the question, supply of potatoes is not changing with the change in price. Hence, it is the right answer.

Quantity demanded of umbrellas was 200 at a price Rs. 60 per umbrella. Quantity demanded of umbrellas increased to 300, however the price was same. In this case, demand curve will shift from

  1. right to left

  2. left to right

  3. downward to upward

  4. upward to downward

  5. None of these


Correct Option: B
Explanation:

Demand curve shifts from left to right when demand increases at the same price level.

A local grocery storekeeper orders 100 cans of soya milk every week and sells them at the price of Rs. 60 per can. At the end of first week, he has sold only 50 cans. What economic situation is the storekeeper facing and what will be the effect of this situation on the price in order to attain equilibrium?

  1. Shortage; price will rise

  2. Surplus; price will fall

  3. Shortage; price will fall

  4. Surplus; price will rise

  5. Equilibrium; no changes in price


Correct Option: B
Explanation:

This answer is right because in the question, there is remaining stock, which is yet to be sold.

When the price of good X rises, demand for good Y rises. X and Y are

  1. inferior goods

  2. complementary goods

  3. substitute goods

  4. normal goods

  5. branded goods


Correct Option: C
Explanation:

Substitutes are those goods which can be used with ease in place of one another. For example, tea and coffee, ink pen and ball pen, are substitutes for each other and can be used in place of one another easily. When goods are substitutes, a fall in the price of one leads to a fall in the quantity demanded of its substitutes. They have positive cross elasticity of demand. This is the correct answer.

There is a demand of 100 kg of onions in the market by consumers and suppliers have supplied exactly 100 kg in the market on consumer demand. Here, demand and supply are in

  1. break-even position

  2. shortage

  3. surplus

  4. equilibrium

  5. inflation


Correct Option: D
Explanation:

Equilibrium occurs when demand and supply are equal.

Yesterday, price of petrol was Rs. 20 per litre and Vishal was willing to purchase 10 litres for his bike.Today, price of petrol has gone up to Rs. 25 and now Vishal is willing to purchase 8 litres. What is Vishal's elasticity of demand?

  1. Inelastic

  2. Unitary elastic

  3. Perfectly inelastic

  4. Perfectly elastic demand

  5. Diminishing marginal utility


Correct Option: A
Explanation:

% change in quantity demanded = (8 - 10)/10 = -0.20 = -20% % change in price = (25-20)/20 = 0.25 = 25% Elasticity = |( -20%)/(25% )| = |-0.8| = 0.8  

You are using a branded shampoo for a long time and you noticed that there is a sudden rise in the price of that shampoo. What can be the reason for this rise in price?

  1. Decrease in cost of production of that particular shampoo

  2. Few people may be buying this brand

  3. Increase in price of other similar shampoos

  4. Increase in price of conditioner

  5. None of these


Correct Option: C
Explanation:

An increase in the price of other shampoos must have increased the demand for the given shampoo. An increase in demand will lead to increase in the price of shampoo to attain equilibrium. Hence, this is the correct answer.

Which of the following predictions is not made by supply and demand theory?

  1. If there is excess demand, price will rise.

  2. If there is excess supply, price will fall.

  3. If there is no excessive demand or supply, market will be in equilibrium stage.

  4. A market which is out of equilibrium will always move rapidly towards the equilibrium.

  5. If price increases, demand falls.


Correct Option: D
Explanation:

This is not a prediction of demand or supply theory.

Which of the following can lead to an increase in supply of sugar?

  1. A decrease in the number of sellers selling sugar

  2. A decrease in price of sugarcane

  3. An increase in consumer's income

  4. Improvement in the technology used in production of sugar

  5. All of the above


Correct Option: D
Explanation:

This answer is correct because efficient technology will lead to an increase in production.

If buyers expect a rise in price of gold in future, this will lead to

  1. unchanged demand

  2. negative demand

  3. a decrease in demand today

  4. an increase in demand today

  5. unitary elastic demand


Correct Option: D
Explanation:

This answer is correct because an increase in future price will lead the consumers to buy more in the present time. This leads to an increase in demand.

If a computer manufacturing company is making computers faster than people want to buy it, then in such a case,

  1. price of computers will increase

  2. price of computers will decrease

  3. price of computers will remain the same

  4. there will be decline in the demand of computers

  5. there will be increase in demand of computers


Correct Option: B
Explanation:

This answer is correct because in the question, supply of computers is more than the demand.

Recently, it was in news that there can be a fall of 30% in Mumbai property market. Such a situation can take place due to

  1. high rate of tax charged on properties

  2. more supply as compared to demand

  3. less purchasing power of people

  4. illegal properties being sold by sellers

  5. high interest rate charged by banks on loans provided


Correct Option: B
Explanation:

Due to more supply and less demand, price of a product falls.

Which of the following will not lead to decrease in demand of labour?

  1. Advanced machinery

  2. Increase in population

  3. Less small scale industries

  4. Robot technology

  5. Increase in productivity


Correct Option: E
Explanation:

If a labourer has high productivity, the firm will not like to replace him.

In a market, prices are determined by

  1. board of directors

  2. government bureaucrats

  3. legal advisors of the company

  4. seasonal demand

  5. supply and demand


Correct Option: E
Explanation:

Price is calculated on the basis of quantity of goods demanded and the quantity of goods supplied. This is the correct answer.

- Hide questions