1. The Law of Demand states that, other things being equal:
A) Demand increases with price
B) Demand decreases with price
C) Supply decreases with price
D) Demand remains constant with price
Answer: B
Explanation: Law of Demand says there is an inverse relationship between price and quantity demanded, ceteris paribus.
2. Which of the following is not a determinant of demand?
A) Consumer income
B) Price of substitutes
C) Government taxation on production
D) Consumer tastes
Answer: C
Explanation: Taxes affect supply side, not consumer demand directly.
3. A rightward shift in the demand curve represents:
A) Decrease in demand
B) Increase in demand
C) Contraction of demand
D) Expansion of demand
Answer: B
Explanation: Rightward shift = higher demand at same price.
4. The demand curve generally slopes:
A) Upward from left to right
B) Downward from left to right
C) Horizontal
D) Vertical
Answer: B
Explanation: It slopes downward due to diminishing marginal utility, substitution effect, and income effect.
5. When income of consumer increases and demand for a commodity decreases, it is called:
A) Normal good
B) Inferior good
C) Giffen good
D) Luxury good
Answer: B
Explanation: Inferior goods have negative income elasticity.
6. Which of the following is a Giffen good?
A) Salt
B) Bread (in case of poor consumers)
C) Gold
D) Laptop
Answer: B
Explanation: Giffen goods are inferior goods with upward sloping demand curve; classic case is staple food like bread/rice for poor.
7. Contraction of demand means:
A) Shift of demand curve to the left
B) Shift of demand curve to the right
C) Movement upward along the same demand curve
D) Movement downward along the same demand curve
Answer: C
Explanation: Contraction happens due to rise in price, not due to shift.
8. Expansion of demand refers to:
A) Fall in demand due to fall in income
B) Increase in demand due to fall in price
C) Shift of demand curve to right
D) Change in taste and preference
Answer: B
Explanation: Expansion = downward movement along demand curve.
9. Which of the following explains the downward slope of demand curve?
A) Law of Diminishing Marginal Utility
B) Law of Increasing Returns
C) Law of Supply
D) Law of Returns to Scale
Answer: A
Explanation: As consumption increases, additional utility decreases, leading to lower willingness to pay.
10. Demand for a good that has close substitutes is generally:
A) Perfectly inelastic
B) More elastic
C) Less elastic
D) Unitary elastic
Answer: B
Explanation: Presence of substitutes makes demand sensitive to price changes.
11. If income rises and demand also rises, the good is:
A) Inferior good
B) Giffen good
C) Normal good
D) Necessity
Answer: C
Explanation: Normal goods have positive income elasticity.
12. Which of the following commodities shows inelastic demand?
A) Salt
B) Gold
C) Clothes
D) Cars
Answer: A
Explanation: Salt is necessity → demand does not change much with price.
13. The quantity demanded of a commodity increases from 50 to 60 units when price falls from ₹10 to ₹9. This is an example of:
A) Expansion of demand
B) Increase in demand
C) Decrease in demand
D) Contraction of demand
Answer: A
Explanation: Change due to fall in price along same demand curve.
14. Demand for luxury goods is generally:
A) Perfectly inelastic
B) Inelastic
C) Elastic
D) Unitary elastic
Answer: C
Explanation: Luxury goods are highly responsive to income/price changes.
15. If tea and coffee are substitutes, an increase in price of tea will:
A) Decrease demand for coffee
B) Increase demand for coffee
C) Not affect demand for coffee
D) Decrease supply of coffee
Answer: B
Explanation: Substitutes: price of one ↑ → demand for other ↑.
16. Which type of good shows negative price elasticity?
A) Necessity goods
B) Normal goods
C) Giffen goods
D) Luxury goods
Answer: C
Explanation: Giffen goods have positive relation between price & demand (negative elasticity logic).
17. Cross elasticity of demand between two complementary goods is:
A) Positive
B) Negative
C) Zero
D) Infinite
Answer: B
Explanation: If price of one rises → demand for other falls (complements).
18. When a consumer derives less satisfaction from additional units, it is due to:
A) Law of Supply
B) Law of Diminishing Marginal Utility
C) Law of Returns to Scale
D) Law of Variable Proportions
Answer: B
Explanation: Extra unit → less marginal utility.
19. Which of the following is an example of derived demand?
A) Demand for food
B) Demand for raw materials
C) Demand for clothes
D) Demand for gold
Answer: B
Explanation: Derived demand exists because of demand for another good (e.g., raw materials depend on demand for final goods).
20. Which factor causes a shift in demand curve?
A) Change in own price of commodity
B) Change in supply
C) Change in consumer income
D) None
Answer: C
Explanation: Price causes movement, income/taste causes shift.
21. Which of these is an exception to the Law of Demand?
A) Inferior goods
B) Giffen goods
C) Substitutes
D) Necessities
Answer: B
Explanation: Giffen goods violate the law as demand increases with price.
22. The demand for seasonal goods (like woolens in winter) is influenced by:
A) Income of consumers
B) Season and climate
C) Price of related goods
D) Technology
Answer: B
Explanation: Season strongly affects demand of such goods.
23. When demand changes due to change in factors other than price, it is called:
A) Change in demand
B) Change in quantity demanded
C) Contraction of demand
D) Expansion of demand
Answer: A
Explanation: Called increase/decrease in demand (shift).
24. Which demand curve is parallel to Y-axis?
A) Perfectly elastic demand
B) Perfectly inelastic demand
C) Unitary elastic demand
D) Relatively elastic demand
Answer: B
Explanation: Vertical curve = perfectly inelastic demand.
25. If demand falls as consumer’s income rises, the income elasticity of demand is:
A) Positive
B) Negative
C) Zero
D) Infinite
Answer: B
Explanation: Negative income elasticity = inferior goods.
26. The Law of Supply states that, other things being equal:
A) Supply decreases when price rises
B) Supply increases when price rises
C) Supply remains unchanged with price
D) Supply depends only on demand
Answer: B
Explanation: Law of Supply shows a direct relationship between price and quantity supplied.
27. Which of the following does not affect supply?
A) Technology
B) Cost of production
C) Price of related goods
D) Consumer tastes
Answer: D
Explanation: Consumer tastes affect demand, not supply.
28. A leftward shift in the supply curve represents:
A) Increase in supply
B) Decrease in supply
C) Expansion of supply
D) Contraction of supply
Answer: B
Explanation: Leftward shift means less supply at the same price.
29. Supply curve generally slopes:
A) Upward
B) Downward
C) Horizontal
D) Vertical
Answer: A
Explanation: Higher prices induce producers to supply more.
30. A technological improvement will shift the supply curve:
A) Rightward
B) Leftward
C) Downward
D) No change
Answer: A
Explanation: Better technology lowers cost → increases supply.
31. Which of the following is a determinant of supply?
A) Population size
B) Weather conditions
C) Consumer preference
D) Taste and fashion
Answer: B
Explanation: Weather affects supply, especially in agriculture.
32. Contraction of supply refers to:
A) Decrease in supply due to fall in price
B) Decrease in supply due to unfavorable weather
C) Decrease in supply due to increase in cost
D) Decrease in supply due to change in technology
Answer: A
Explanation: Contraction = movement along supply curve due to lower price.
33. When supply of one commodity increases due to fall in supply of another, it is called:
A) Joint supply
B) Composite supply
C) Competitive supply
D) Derived supply
Answer: C
Explanation: In competitive supply, resources are shifted between products.
34. The minimum price at which a seller is willing to sell is known as:
A) Market price
B) Reserve price
C) Equilibrium price
D) Cost price
Answer: B
Explanation: Reserve price is the lowest acceptable price.
35. Which of the following causes an increase in supply?
A) Increase in input costs
B) Increase in excise duty
C) Improvement in technology
D) Adverse natural conditions
Answer: C
Explanation: Improved technology → reduces cost → more supply.
36. If price rises but supply does not increase, supply curve is:
A) Perfectly elastic
B) Perfectly inelastic
C) Relatively elastic
D) Relatively inelastic
Answer: B
Explanation: Perfectly inelastic supply = vertical supply curve.
37. Agricultural supply is often inelastic in the short run because:
A) Prices fluctuate
B) Output cannot be quickly changed
C) Farmers lack information
D) Demand is unstable
Answer: B
Explanation: Agricultural production is time-bound → inelastic short run supply.
38. Joint supply refers to:
A) One product produced by many firms
B) Supply of a product dependent on supply of another
C) Two or more products produced together
D) Substitutes in production
Answer: C
Explanation: Example: wool and mutton from same sheep.
39. Derived supply is when supply of a factor depends on:
A) Demand for another commodity
B) Government policy
C) Price of substitute goods
D) Income of consumers
Answer: A
Explanation: Derived supply arises because of demand for final products (e.g., labor demand).
40. Which curve shows the quantity supplied at different prices?
A) Demand curve
B) Supply curve
C) Production possibility curve
D) Indifference curve
Answer: B
Explanation: By definition, supply curve = price vs quantity supplied.
41. If government imposes higher taxes on producers, the supply curve will shift:
A) Rightward
B) Leftward
C) Downward
D) No change
Answer: B
Explanation: Higher taxes increase costs → supply decreases.
42. An increase in the number of producers leads to:
A) Contraction in supply
B) Increase in supply
C) Decrease in supply
D) Contraction of demand
Answer: B
Explanation: More producers = higher market supply.
43. Which of the following is an exception to the Law of Supply?
A) Agriculture
B) Monopoly
C) Labour supply at very high wages
D) All of the above
Answer: D
Explanation: In some cases supply may not rise with price (backward-bending labor curve, monopoly, agriculture).
44. In the short run, supply is affected mainly by:
A) Costs of inputs
B) Consumer incomes
C) Population growth
D) Taste and preference
Answer: A
Explanation: Input costs are key determinants of supply in the short run.
45. Market supply curve is obtained by:
A) Summing up individual demand curves
B) Summing up individual supply curves
C) Averaging demand and supply
D) Summing up income of consumers
Answer: B
Explanation: Market supply = horizontal summation of individual supply curves.
46. When supply of a commodity increases due to favorable weather conditions, it is called:
A) Expansion of supply
B) Increase in supply
C) Contraction of supply
D) Decrease in supply
Answer: B
Explanation: Supply curve shifts rightward due to non-price factor.
47. If price rises and supply rises along the same curve, it is called:
A) Increase in supply
B) Expansion of supply
C) Decrease in supply
D) Contraction of supply
Answer: B
Explanation: Expansion = movement along supply curve due to price.
48. Supply of perishable goods like vegetables is generally:
A) Perfectly elastic
B) Perfectly inelastic
C) Unitary elastic
D) Relatively inelastic
Answer: D
Explanation: Perishables cannot be stored → inelastic supply.
49. Which of these will cause a leftward shift of supply curve?
A) Subsidy to producers
B) Higher input prices
C) Technological progress
D) Entry of new firms
Answer: B
Explanation: Higher costs → reduce supply.
50. If supply increases more than proportionate to rise in price, supply is:
A) Perfectly inelastic
B) Relatively inelastic
C) Elastic
D) Unitary elastic
Answer: C
Explanation: Elastic supply = proportionate or more response to price.
51. Price elasticity of demand measures:
A) Responsiveness of demand to income
B) Responsiveness of demand to price
C) Responsiveness of supply to demand
D) Responsiveness of supply to price
Answer: B
Explanation: Price elasticity of demand (PED) = % change in demand ÷ % change in price.
52. When demand is perfectly inelastic, the demand curve is:
A) Horizontal
B) Vertical
C) Downward sloping
D) Upward sloping
Answer: B
Explanation: Perfectly inelastic demand curve is vertical → demand unchanged despite price change.
53. If demand for salt remains constant despite price changes, elasticity is:
A) Perfectly elastic
B) Perfectly inelastic
C) Unitary elastic
D) Relatively elastic
Answer: B
Explanation: Salt is a necessity with zero responsiveness to price.
54. Elasticity of supply measures:
A) Responsiveness of supply to demand
B) Responsiveness of supply to income
C) Responsiveness of supply to price
D) Responsiveness of demand to supply
Answer: C
Explanation: Supply elasticity = % change in quantity supplied ÷ % change in price.
55. When elasticity of demand > 1, demand is:
A) Inelastic
B) Unitary elastic
C) Elastic
D) Perfectly inelastic
Answer: C
Explanation: Elastic demand → consumers respond more than proportionately to price change.
56. When elasticity of demand = 1, demand is:
A) Perfectly elastic
B) Unitary elastic
C) Inelastic
D) Perfectly inelastic
Answer: B
Explanation: Unitary elasticity means proportionate change in demand and price.
57. In case of luxury goods, elasticity of demand is usually:
A) High
B) Low
C) Zero
D) Negative
Answer: A
Explanation: Luxury goods have high price elasticity.
58. If elasticity of demand is less than 1, demand is:
A) Elastic
B) Inelastic
C) Perfectly elastic
D) Unitary elastic
Answer: B
Explanation: Inelastic demand → quantity responds less than proportionately.
59. The slope of demand curve and elasticity of demand are:
A) Always the same
B) Not related
C) Different concepts
D) Identical in meaning
Answer: C
Explanation: Slope is absolute change, elasticity is percentage responsiveness.
60. Which of the following has perfectly elastic demand?
A) Salt
B) Government bonds
C) Commodities under perfect competition
D) Diamonds
Answer: C
Explanation: Under perfect competition, firms face a horizontal demand curve → perfectly elastic demand.
61. Cross elasticity of demand for substitutes is:
A) Positive
B) Negative
C) Zero
D) Infinite
Answer: A
Explanation: Price of one ↑ → demand for substitute ↑.
62. Cross elasticity of demand for complementary goods is:
A) Positive
B) Negative
C) Zero
D) Infinite
Answer: B
Explanation: Price of one ↑ → demand for complement ↓.
63. Income elasticity of demand measures responsiveness of demand to changes in:
A) Price
B) Income
C) Supply
D) Tax
Answer: B
Explanation: Income elasticity = % change in demand ÷ % change in income.
64. For inferior goods, income elasticity is:
A) Positive
B) Zero
C) Negative
D) Infinite
Answer: C
Explanation: Inferior goods → demand falls as income rises.
65. If income elasticity of demand is greater than 1, the good is:
A) Inferior good
B) Normal necessity
C) Luxury good
D) Giffen good
Answer: C
Explanation: Luxury goods have high income elasticity.
66. If elasticity of supply is equal to zero, supply curve is:
A) Upward sloping
B) Downward sloping
C) Vertical
D) Horizontal
Answer: C
Explanation: Zero elasticity = perfectly inelastic supply.
67. If elasticity of supply is infinite, supply curve is:
A) Horizontal
B) Vertical
C) Downward sloping
D) Upward sloping
Answer: A
Explanation: Perfectly elastic supply = horizontal curve.
68. The concept of elasticity of demand was introduced by:
A) Alfred Marshall
B) Adam Smith
C) Ricardo
D) Keynes
Answer: A
Explanation: Marshall (1890) introduced elasticity of demand.
69. If price elasticity of demand for a commodity is 0.5, the demand is:
A) Elastic
B) Inelastic
C) Unitary elastic
D) Perfectly elastic
Answer: B
Explanation: Since < 1 → demand is inelastic.
70. Which of the following goods has zero income elasticity of demand?
A) Salt
B) Gold
C) Clothes
D) Cars
Answer: A
Explanation: Salt consumption does not change with income → zero elasticity.
71. The elasticity of demand for a straight-line demand curve is:
A) Same at all points
B) Different at different points
C) Always unity
D) Infinite
Answer: B
Explanation: Elasticity varies along a straight-line demand curve (high at upper end, low at lower end).
72. If the percentage change in demand equals percentage change in price, elasticity is:
A) Perfectly elastic
B) Perfectly inelastic
C) Unitary elastic
D) Elastic
Answer: C
Explanation: By definition, unitary elasticity = proportional changes.
73. Which type of elasticity is useful for indirect taxation policy?
A) Income elasticity
B) Cross elasticity
C) Price elasticity
D) Supply elasticity
Answer: C
Explanation: Governments impose taxes on goods with inelastic demand (price elasticity).
74. If supply increases by 20% due to 10% rise in price, elasticity of supply is:
A) 0.5
B) 1
C) 2
D) 10
Answer: C
Explanation: Elasticity = 20 ÷ 10 = 2 (elastic).
75. In case of factor of production like land, supply is usually:
A) Perfectly elastic
B) Perfectly inelastic
C) Elastic
D) Unitary elastic
Answer: B
Explanation: Supply of land is fixed, hence perfectly inelastic.
76. Market equilibrium occurs when:
A) Demand > Supply
B) Demand < Supply
C) Demand = Supply
D) None
Answer: C
Explanation: Equilibrium is reached at the intersection of demand & supply curves.
77. If government imposes a price ceiling below equilibrium, it will lead to:
A) Surplus
B) Shortage
C) Equilibrium
D) Higher supply
Answer: B
Explanation: Price ceiling → lower than equilibrium price → excess demand (shortage).
78. A price floor above equilibrium causes:
A) Shortage
B) Surplus
C) Equilibrium
D) Higher demand
Answer: B
Explanation: Price floor → higher than equilibrium → excess supply (surplus).
79. Consumer surplus is the difference between:
A) Market price and cost of production
B) Total utility and marginal utility
C) Willingness to pay and actual price paid
D) Producer’s revenue and cost
Answer: C
Explanation: Consumer surplus = extra satisfaction over what is paid.
80. Producer surplus is the difference between:
A) Price received and minimum acceptable price
B) Demand and supply
C) Cost and revenue
D) Profit and revenue
Answer: A
Explanation: Producer surplus is benefit received above minimum supply price.
81. If demand increases and supply remains constant, equilibrium price will:
A) Fall
B) Rise
C) Remain unchanged
D) Cannot be determined
Answer: B
Explanation: More demand, same supply → price rises.
82. If supply increases and demand remains constant, equilibrium price will:
A) Rise
B) Fall
C) Remain unchanged
D) Cannot be determined
Answer: B
Explanation: More supply, same demand → price falls.
83. When both demand and supply increase, equilibrium quantity will:
A) Increase
B) Decrease
C) Remain constant
D) Cannot be determined without relative changes
Answer: D
Explanation: Effect depends on magnitude of shifts.
84. When both demand and supply decrease, equilibrium quantity will:
A) Fall
B) Rise
C) Stay same
D) Indeterminate
Answer: D
Explanation: Depends on which curve shifts more.
85. Price discrimination is possible under:
A) Monopoly
B) Perfect competition
C) Oligopoly
D) Monopolistic competition
Answer: A
Explanation: Monopoly power allows charging different prices for same product.
86. In equilibrium, at price above equilibrium price:
A) Demand > Supply
B) Supply > Demand
C) Demand = Supply
D) Demand = Zero
Answer: B
Explanation: Higher price → excess supply (surplus).
87. At equilibrium price:
A) Market clears
B) There is shortage
C) There is surplus
D) Producers suffer losses
Answer: A
Explanation: Equilibrium → quantity demanded = quantity supplied.
88. If demand falls while supply remains same, equilibrium price will:
A) Increase
B) Decrease
C) Stay constant
D) Cannot be determined
Answer: B
Explanation: Fall in demand reduces equilibrium price.
89. Which of the following maximizes social welfare?
A) Price floor
B) Price ceiling
C) Market equilibrium
D) Monopoly pricing
Answer: C
Explanation: Equilibrium ensures efficient allocation.
90. In perfect competition, long-run equilibrium ensures:
A) Supernormal profits
B) Losses
C) Normal profits
D) No profits
Answer: C
Explanation: Free entry/exit ensures only normal profits remain.
91. Deadweight loss arises due to:
A) Equilibrium price
B) Perfect competition
C) Government intervention (tax, ceiling, floor)
D) Free market
Answer: C
Explanation: Taxes or controls create inefficiency → deadweight loss.
92. Which curve shows combinations of two goods a consumer can afford?
A) Demand curve
B) Indifference curve
C) Budget line
D) Supply curve
Answer: C
Explanation: Budget line = income ÷ prices.
93. Which is true at equilibrium point?
A) Excess demand exists
B) Excess supply exists
C) No tendency to change price
D) Govt sets price
Answer: C
Explanation: At equilibrium, market is stable.
94. If the government sets minimum wage above equilibrium, it leads to:
A) Full employment
B) Unemployment
C) Inflation
D) Wage fall
Answer: B
Explanation: Higher minimum wage → surplus labor = unemployment.
95. Price elasticity of demand at equilibrium helps in deciding:
A) Tax policy
B) Income distribution
C) Foreign trade policy
D) Monetary policy
Answer: A
Explanation: Taxation is imposed on goods with inelastic demand.
96. The term “excess demand” means:
A) Demand less than supply
B) Demand equal to supply
C) Demand greater than supply
D) Demand unrelated to supply
Answer: C
Explanation: Excess demand = shortage in market.
97. Which of the following happens if there is excess supply?
A) Prices will rise
B) Prices will fall
C) Prices remain constant
D) Demand rises
Answer: B
Explanation: Excess supply → competition → prices fall.
98. Equilibrium quantity is determined by:
A) Demand only
B) Supply only
C) Both demand and supply
D) Government
Answer: C
Explanation: Quantity traded is fixed where demand & supply intersect.
99. Consumer equilibrium is achieved when:
A) Marginal utility = price
B) Marginal utility of money = price
C) MUx/Px = MUy/Py
D) Income = expenditure
Answer: C
Explanation: Consumer equilibrium condition: ratio of marginal utility to price equal across goods.
100. When price is above equilibrium, to restore equilibrium:
A) Price must rise
B) Price must fall
C) Supply must decrease
D) Demand must fall
Answer: B
Explanation: Surplus leads to price fall till equilibrium is restored.