Test: Theory Of Demand- 2


30 Questions MCQ Test Economics for CA CPT | Test: Theory Of Demand- 2


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QUESTION: 1

Movement along the same demand curve shows:

Solution:
QUESTION: 2

The Price of a tiffin box is Rs. 100 per unit and the quantity demanded in a market is 1,25,000 units . Company increased the price to Rs.125 per unit due to this increase in price quantity demanded decreases to 1,00,000 units. what will be price elasticity of demand ______

Solution:
QUESTION: 3

The cross elasticity of demand between two perfect substitutes will be

Solution:
QUESTION: 4

Cross elasticity of demand in Monopoly market is: 

Solution:

Cross elasticity of demand refers to the change in demand of a commodity due to change in price of substitutes. In case of monopoly, there are no substitutes of the product,hence the cross elasticity of demand is zero.

QUESTION: 5

An increase in demand can result from: 

Solution:
QUESTION: 6

Normally a demand curve will have the shape:

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QUESTION: 7

Which statement is true about the law of demand?

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QUESTION: 8

Which factor generally keeps the price-elasticity of demand for a good low: 

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QUESTION: 9

When the total expenditure incurred by the consumers on a commodity due to a change is its price remains the same, then the elasticity of demand for that commodity will be:

Solution:

Correct Answer :- b

Explanation : When the demand for a commodity is price elastic and the price of the commodity falls the in such a situation the total expenditure on the commodity rises. This is because of the fact that when the demand is price elastic the proportionate change in quantity demanded is greater than the proportionate change in price. As a result when the price falls the quantity demanded rises by a greater proportion than the proportionate fall in price such that the rise in quantity exceeds the fall and price thereby, the total expenditure rises.

QUESTION: 10

For a commodity with a unitary elastic demand curve if the price of the commodity raises, then the consumer’s total expenditure on this commodity would: 

Solution:
QUESTION: 11

Suppose the price of movies seen at a theatre rises form Rs. 120 per person to Rs. 200 per person. The theatre manager observes that the rise in price leads to a fall in attendance at a given movie from 300 to 200 persons what is then price elasticity of demand for movies:

Solution:
QUESTION: 12

The horizontal demand curve parallel to x-axis implies that the elasticity of demand is:

Solution:

The horizontal demand curve parallel to x-axis implies that the elasticity of demand is infinite.It is zero when the demand curve is parallel to the y-axis.

QUESTION: 13

Original price of a commodity is Rs. 500 and quantity demanded of that is 20 kgs. If the price rises to Rs. 750 and the quantity demanded reduces to 15 kgs. The price elasticity of demand will be:

Solution:
QUESTION: 14

What is the original price of a commodity when price elasticity is 0.71 and demand changes from 20 units to 15 units and the new price is Rs. 10?

Solution:

 

QUESTION: 15

For what type of good does demand fall with a rise in income levels of households?

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QUESTION: 16

In case of luxury goods, the income elasticity of demand will be_______

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QUESTION: 17

In the case of a straight-line demand curve meeting the two axes, the price-elasticity of demand at the mid-point of the line would be:

Solution:
QUESTION: 18

What is Engel’s Curve?

Solution:

An Engel curve describes how household expenditure on a particular good or service varies with household income. There are two varieties of Engel curves. Budget share Engel curves describe how the proportion of household income spent on a good varies with income.

QUESTION: 19

When price falls by 5% and demand increase by 6%, then elasticity of demand is______.

Solution:

EOD =6/5
=1.2
Since EOD is greater than 1. So, it is elastic.

QUESTION: 20

In expansion and contraction of demand ______

Solution:

Expansion of demand refers to the period when quantity demanded is more because of the fall in prices of a product. However, contraction of demand takes place when the quantity demanded is less due to rise in the price of a product. Expansion and contraction are represented by the movement along the same demand curve.

QUESTION: 21

If demand is parallel to x-axis, what will be the nature of elasticity?

Solution:

When the demand is parallel to x axis i.e. demand of a commodity changes even when the price remains unchanged, the elasticity is at infinity. Hence the nature of the elasticity is perfectly elastic.

QUESTION: 22

Demand of i-pod increases from 950 to 980 and income increases from 9,000 to 9,800 . What is income elasticity?

Solution:

Q1 = 950, Q2 = 980

⇒ ∆Q = 30

M1 = 9000, M2 = 9800

⇒ ∆M = 800

QUESTION: 23

Demand for electricity power is elastic because_______

Solution:

The more possible uses of a commodity are the greater will be its price elasticity and vice versa. So we can say that demand of electricity power is elastic because it has many uses. Other example of such type of product can be milk.

QUESTION: 24

In case of substitute goods, cross elasticity is ________

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QUESTION: 25

When price falls from Rs. 6 to Rs. 4, the demand rises form 10 to 15 units. Calculate price elasticity of demand. (Point elasticity)

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QUESTION: 26

Increase in Price from Rs. 4 to Rs. 6 then decrease in demand from 15 units to 10 units. What is the price elasticity. (Point elasticity)

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QUESTION: 27

Law of demand is a ________

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QUESTION: 28

Elasticity between two points 

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QUESTION: 29

The quantity demanded does not respond to price change and so the elasticity is: 

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QUESTION: 30

When the price of cylinder rises form Rs. 120 to Rs. 200, the demand falls from 300 to 200. Calculate price elasticity of demand.

Solution:

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