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1. The elasticity for the demand of durable goods is __________.
A. Zero
B. Equal to unity
C. Greater than unity
D. Less than unity
ANSWER: C.Greater than unity
SOLUTION :The elasticity of demand for durable goods is greater than unity.
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2. Normally the demand curve will have a _______________ shape.
A. Upward sloping
B. Downward sloping
C. Vertical
D. Horizontal
ANSWER:B.Downward sloping
SOLUTION:
Normally the demand curve slopes downwards as it indicates inverse relationship between price and quantity demand.
3. Which of the following is an assumption made while drawing the demand curve?
A. The demand curve must be linear
B. The price of substitutes should not change
C. The quantity demanded should not change
D. The price of the commodity should not change
ANSWER : B.The price of substitutes should not change
SOLUTION:
Prices of substitutes should not change is the assumption of law of demand.
4. Law of demand shows a relation between the ___________
A. Quantity demand and quantity supply of a commodity
B. Income and quantity demand of a commodity
C. Price and quantity of a commodity
D. Income and price of a commodity
ANSWER: C.Price and quantity of a commodity
SOLUTION:
The law of demand posits that the price of an item and the quantity demanded have an inverse relationship. Essentially, it tells us that people will buy more of something when its price falls and vice versa. When graphed, the law of demand appears as a line sloping downward.
5. When the price of a product falls by 10% and its demand rises by 30%, then the elasticity of demand is _________.
A. 13
B. 3
C. 10
D. 30
ANSWER: B. 3
SOLUTION:
Given: Price falls by 10% and demand rises by 30%. Answer: The elasticity of demand is 3.
6. When the elasticity of demand for a commodity is very low, it shows that the product ________.
A. Has little importance in the total budget
B. Is a luxury
C. Is a necessity
D. None of the above
ANSWER: C.Is a necessity
SOLUTION:
The commodity is a necessity if the elasticity of demand is low. Explanation: When the elasticity of demand is very low, the commodity is a necessity since that commodity has a little importance to the total budget.
7. Which of the following is not a cause of the shift in demand for a product?
A. Change in the price of substitutes
B. Change in the income of a consumer
C. Change in the price of a product
D. None of the above
ANSWER: C.Change in the price of a product
SOLUTION :
A change in the price of the product leads to movement along the demand curve and not a shift in the demand curve.
8. In case the price of a product and the total revenue from that product move in the same direction, then the demand is ____________.
A. Perfectly elastic
B. Inelastic
C. Elastic
D. Unrelated
ANSWER: B.Inelastic
SOLUTION:
If price and total revenue move in the same direction, then demand is Inelastic.
9. Which of the following scenarios will not lead to a change in demand for a product?
A. A change in the tastes of its consumers
B. A change in the price of that product
C. An increase in the income of its consumers
D. None of the above
ANSWER: D.None of the above
SOLUTION:
A change in the price of the product leads to movement along the demand curve and not a shift in the demand curve.
10. If price changes by 1% and supply changes by 2%, then the supply is ______
A. Static
B. Indeterminate
C. Inelastic
D. Elastic
ANSWER: D.Elastic
SOLUTION:
If price changes by 1% and supply changes by 2%, then supply is Elastic. The Price Elasticity of Supply (PES) for elastic and inelastic supply would be different. The PES for elastic supply would be greater than 1.