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Demand & Supply, . Which of the following pairs of goods is an, , example of substitutes?, , (a) Tea and sugar (b) Tea and coffee, , (c) Pen and ink (d) Shirt and trousers, , 2. The consumer is in equilibrium when the, , following condition is satisfied., , (a) MU, > Py (b) MU, < Py, MU, Py MU, = Py, , (c) MUx = Ps (d) None of the above, MU, Py, , . Consumer surplus means, , , , (a) the area inside the budget line, (b) the area between the average revenue and, marginal revenue curves, (c) the difference between the maximum amount a, person is willing to pay for a good and its market, price, (d) none of the above, |. A horizontal supply curve parallel to the quantity, axis implies that the elasticity of supply is ——., (a) zero, (b) infinite, (c) equal to one, (d) greater than zero but less than one, 5. In a free market economy, when consumers, increase their purchase of a good and the level, , of exceeds then prices, tend to rise., , (a) demand, supply (b) supply, demand, , (c) prices, demand () profits, supply, , silverware. if the price of a plate-setting is, reduced from Rs, 300 to Rs.200 and the quantity, demanded increases from 3,000 platesettings to, 5,000 plate-settings, what Is the price elasticity, of demand for silverware?, (a) 8 (b) 1.0, (c) 1.25 (d) 1.50, , . A discount store has a special offer on CDs. it, reduces their price from Rs.150 to Rs.100., Suppose the store manager observes that the, quantity demanded increases from 700 CDs to, (Use Arc Elasticity Method) 1,300 CDs. What is, the price elasticity of demand for CDs? (Use Arc, Elasticity Method), (a) 8 (b) 1.0, (c) 126 (d) 1.60, , |. If the local pizzeria raises the price of a medium, pizza from Rs.60 to Rs.100 and quantity, domandod falls from 700 pizzas a night to 100, pizzas a night, the price elasticity of demand for, , pizzas Is:, (a) 67 (bo) 15, () 20 (d) 3.0, , |. After reaching the saturation point, consumption, of additional units of the commodity cause:, , (a) Total utifity to fall and marginal utility to increase, (b) Total utitity and marginal utility both to increase, , By Rakesh Choudhary, , Page |2.1, , (c) Total utility to fall and marginal utility to become, , negative, (4) Total utility to became negative and marginal, utility to fail, , 10. Consumer surplus is highest in the case of:, , (a) Necessities. (b) Luxuries., , (¢) Comforts. (d) Conventional necessities., 11.——-—. pair of commodities is an oxamplo, , of substitutes,, , (a) Coffee and milk (b) Diamond and cow, , (c) Pen and ink (d) Mustard oil and coconut oil, 12. When the price of a substitute of X commodity, , falls, the demand for X ——., , (a) Rises (b) Falls, , (c) Remains unchanged —(d) Any of the above., 13. Marginal utility approach to demand was given, , by ——_—__—.., , (a) JR. Hicks (b) Alfred Marshall, (c) Robbins (0) A. C. Pigou, , 14, If lowering of fares reduces railway's revenues, and increasing of fares increases, them the, demand for rail travel has a price elasticity of —, , (a) Zero (b) Greater than zero but less than one., (c) One (d) Greater than one, , 15. If R point bisects the demand curve in two equal, parts, then elasticity at R equats ., (a) Zero (0) Five, (c) Two (d) One, , , , In Econoville, there is one grocery shop,, , Ecoconvenience. it used to sell frosh milk at Rs. 20, , per litre, at which price 400 litres of milk were sold, , per month. After some time, the price was raised to, , Rs. 30 per litre, Following the price rise:, , + Only 200 litres of milk was sold every month., , * The number of boxes of cereal customers, bought went down from 280 to 240., , * The number of packets of powered milk, customers bought went up from $0 to 220 per, month., , Now answer Questions number 16-21., , 16. The price elasticity of demand when fresh milk’s, price increases from Rs. 20 per litre to, (a)25 (©) 1.0, (c) 1.66 (d) 2.66, , 17. The cross olasticity of monthly demand for, cereal when the price of fresh milk increases, from Rs. 20 to Rs. 30 is equal to:, , (a) - 0.38 (b) + 0.25., (c) - 0.19. (d) + 0.38., , 18. The cross elasticity of monthly demand for, powdered milk when the price of fresh milk, increases from Rs. 20 to Rs. 30 per litre is equal, to:, , 9990709550 / 9990709500

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Demand & Supply, , Page |2.2, , , , (a) + 1.05. {) «1,06., (c) -2.09. (d) + 2.09., , 19. What can be said about the price elasticity of, demand for fresh milk?, (a) It is perfectly elastic., (c) Itis perfectly inelastic., , (b) It is elastic., (d) It is inelastic., , 20. Suppose income of the residents of Ecoville, increases by 50% and the quantity of fresh milk, demanded increases by 30%. What is income, elasticity of demand for fresh milk?, , (a) 0.5 (b) 0.6, (c) 1.25 (9) 1.50, , 21. We can say that fresh milk in economic sense is, , aan:, (a) luxury good (b) inferior good, (c) normal good (d) nothing can be said., , 22. Hf a good is a luxury, its income elasticity of, demand ts, (a) Positive and less than 1, (b) Negative but greater than -1., , (c) Positive and greater than 1, (d) Zero., , 22. In the case of a Gifen good, the diiad Cun, will be, (a) Horzontal, (b) Downward-sloping to the right, (c) Upward-stoping to the right, (d) Vertical, , 24. If increasing air fares increases revenues and, decreasing them decreases revenues, then the, demand for air travel has a price elasticity of, (a) Zero, (b) Greater than zero but less than one, (c) One, (d) Greater than one, , Read the following data and answer Questions, , number 25-30, , A shopkeeper sells gel pen at Rs. 10 per pen. At this, , price he can sell 120 per month. After some time, ho, , raises the price to Rs. 15 per pen. Following the, , price rise:, , * Only 60 pens were sold every month., , * The number of refills bought went down from, 200 to 150., , * The number of ink pen customers bought went, up from 90 to 180 per month., , 25. The price elasticity of demand when gel pen's, price increases from Rs. 10 per pen to Rs., (a 25 (b) 1.0, (c) 1.66 (d) 2.66, , 26. The cross elasticity of monthly demand for refills, when the price of gel pen increase from Rs. 10 to, Rs.15 is equal to:, , (a)-O71 (bo) + 0.25, , By Rakesh Choudhary, , (c)-0.1 (d) + 0.38, , 27. The cross elasticity of monthly demand for ink, pen when the price of gel pen increases from Rs., 10 to Rs. 15 is equal to:, , (a) + 1.66 (b) -1.05, (c) -2.09 (d) + 2.09, 28. What can be said about the price elasticity of, demand for pen?, (a) It is perfectty elastic (b) It is elastic, , (c) Itis perfectly inelastic —_(d) It is inelastic, , 29. Suppose income of the residents of locality, increases by 50% and the one of gel pens, demanded increases by ate Set is Income, elasticity af demand for gel pen, (a) 04 woe, (ce) 1.25 (d) 1.50, , 30. We can say that gel pen in economics sense is, a/an, , (a) Luxury good —(b) Inferior good, (c) Normal good = (d) Nothing can be said, 31. Suppose the demand for meals at a medium., priced restaurant is elastic. If the management of, the restaurant is considering raising prices, it, can expect a relatively:, (a) large fall in quantity demanded, (b) large fall in demand, (c) small fal in quantity demanded, (d) small fall in demand, 32. Which one is not an assumption of the theory of, demand based on analysis of indifference, curves?, (a) Given scale of preferences as between different, combinations of two goods, (b) Diminishing marginal rate of substitution, (c) Constant marginal utility of money, (d) Consumers would always prefer more of a, particular good to less of it. other things, remaining the same, 33. The law of demand rofers to, (a) price-supply relationship, (b) price-cost relationship, (c) price-demand relationship, (d) price-income relationship, 34. If the local pizzeria raises the price of a medium, pizza from Rs.60 to Rs.100 and quantity, demanded falls from 700 pizzas a night to 100, pizzas a night, the price elasticity of demand, (a) 67 (b) 1.5, (ce) 20 (d) 3.0, 35. Suppose a consumer's income increases from, Rs.30,000 to Rs.36,000, As a result, the, consumer increases her purchases of compact, discs (CDs) from 25 CDs to 30 CDs, What is the, consumer's income elasticity of demand for, CDs?, (a)0.5 (b) 1.0, , 9990709550 / 9990709500

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Demand & Supply, , (c) 1.5 () 2.0, , 36, If the quantity demanded of beef increases by, 5% when the price of chicken increases by 20%,, the cross-price elasticity of demand between, beef and chicken is, (a) -0.25 (b) 0.25, (c)-4 (4, , 37. In a typical demand schedule, quantity, demanded:, (a) varies directly with price, (b) varies proportionately with price, (c) varies inversely with price, (d) is independent of price, , 38. The total effect of a price change of a commodity, is, , (a) substitution effect plus price effect, (b) substitution effect plus income effect, (c) substitution effect plus demonstration effect, (d) substitution effect minus income effect, 39. Demand for electricity ts olastic because ———, (a) itis very expensive, (b) it has a number of close substitutes, (c) it has alternative uses, (d) none of the above, 40. The law of consumer surplus is based on :, (a) Indifference curve analysis, (b) Revealed preference theory,, (c) Law of substitution, (d) The law of diminishing marginal utility, 41. Supply of a commodity is a:, (a) Stock concept, (b) A flow concept, (c) Both stock and flow concept., (d) None of these., 42. If two goods were porfect substitutes of each, other, it necessarily follows that, (a) An indifference curve relating the two goods will, be curvilinear., (b) An indifference curve relating the two goods will, be linear, (c) An indifference curve relating the two goods will, be divided into two segments which meet at a, fight angie,, (d) An indifference curve relating the two goods will, be convex to the origin., 43. Giffen goods are those goods, (a) For which demand increases as price increases, (b) That have a high income elasticity of demand, (c) That are in short supply, (d) None of these, 44. If two goods are complements, this means that a, tise in the price of one commodity will induce, , (a) An upward shift in demand for the other, commodi, , ity., (b) A rise in the price of the ather commodity., , By Rakesh Choudhary, , Page [2.3, , (c) A downward shift in demand for the other, commodity,, , (d) No shift in the demand for the other commodity., , 45. Demand for final consumption arises in, , (a) Household sector only., , (b) Government sector only., , (c) Both household and government sectors., (d) Neither household nor government sector, , Reed table 2 exteiazwer Questions number 46-40, , , , , , , , , , , , , , , , % ange] © Gangs WW quanily | Slastaly, nprke ites, = ‘, , Demand tor, wf 15 y 3, , Supply of z 4 1, chicken, 46. Refor Table 2 and find the value of x., , (a) -20 (b) 0.05, , (c) -1 (¢) Can not be determined, 47. Refer Table 2 and find the value of y., , (a)-5 (b) 15, , (c) -45 {d) -3, 48. Refer table 2 and find the value of z., , (a) 14 (b) 1, , (c) 0.07 (d)5, , 49. If the quantity of CO demanded increases from, 260 to 290 in response to an increase in income, from Rs. 9,000 to Rs. 9,800, the income elasticity, , of demand ts approximately:, (a) 3.4 () 0.01, (ce) 1.3 (23, , 50. If the quantity of good X demanded increases, from 8 to 12 in response to an increase in the, price of good Y from Rs. 23 to Rs. 27, the cross, elasticity of demand for X with respect to the, price of Y is approximately:, , (a) 0.36 and X and Y are complements., (b) 0.35 and X and Y are substitutes., (c) 2.5 and X and Y are complements., (d) 2.5 and X and Y are substitutes,, , 51. An increase in the demand can result from:, , (a) Adectine in market price., , (b) An increase in income., , (c) A reduction in the price of substitutes,, (d) An increase in the price of complements., , 52. A necessity is defined as a good having:, (a) A positive income elasticity of demand., (b) A negative income elasticity of demand., (c) An income elasticity of demand between zero, , and 1., (d) An income elasticity of more than 1, , 53. Which of the following is incorrect?, , (a) The cross elasticity of demand for two, Substitutes is positive, , 9990709550 / 9990709500

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Demand & Supply, , (b) The income elasticity of demand is the, percentage change in quantity demanded of a, good due to a change in the price of a substitute, , (c) The cross elasticity of demand for two, complements is negative, , (d) The price elasticity of demand is always, negative, except for Giffen goods, , 54. Which of the following situation does not lead to, an increase in equilibrium price?, , (a) An increase in demand, without a change in, , supply, , (bo) A decrease in supply accompanied by an, increase in demand, , (c) A decrease in supply without a change in, demand, , (d) An increase in supply accompanied by a, decrease in demand, , 55. Demand for final consumption arises in__(a) Household sector only, (b) Government sector only, (c) Both household and government sectors, (d) Neither household nor government sector, , 56. If as a result of 20 percent fall in the ticket fares, the demand for ‘watching movie’ in the cinema, hall increases by 10 percent,then, (a) Zero, (b) Greater than zero but less than one, (c) One, (d) Greater than one, , 57. A book seller ostimates that if she increases the, price of a book from Rs.60 to Rs.67, the quantity, of books demanded will decrease from 2,035 to, 1,946. The book's price elasticity of demand is, , approximately, (a) 0.4 (b) 08, (c) 1.0 (d) 25, , 58. Concerned about the poor state of the economy,, 2 car dealer estimates that if income decreases, by 4 per cent, car sales will fall from 352 to 335., Consequently, the income elasticity of demand, , for cars Is approximately, (a)-1.2 (b) 0.01, (c) 0.4 (12, , 59. If the quantity of blankets demanded increases, from 4600 to 5700 in response to a decrease in, their price from Rs. 220 to Rs. 190, the price, , elasticity of demand for blankets is, (a) 0.69 (b) 1.0, (c) 1.46 (d) 2.66, , 60. The cross olasticity of monthly domand for gol, pen when the price of refills increases by 20%, and demand for gel pens falls by 30% is equal to:, (a)-0.71 (b) + 0.25, (c) -0.19 (d) -1.5, , 61. The cross elasticity of monthly demand for ink, pen when the price of gel pen increases by 25%, ‘and demand for ink pen increases by 50% is, equal to:, , By Rakesh Choudhary, , , , Page |2.4, , (a) + 2.00 (b) - 2.00, , (c) -2,0918000 (d) + 2.09, Read the following table and answer question, number 62 -63,, Table 3, , 17600, 18000, , 62. What is marginal utility when consumption, , increases from 4 units to 5 units?, (a) 3000 (b) 1200, (c) 2000 (d) 1500, 63. What is marginal utility when consumption, increases from 8 units to 9 units?, (a) 3000 (b) 400, (e) 2000 (d) 1500, , 64. A drought in India leads to unusually low level of, wheat production. This would lead to a rise in, the price of wheat and fall in the quantity of, wheat demanded due to:, , (a) excess demand at the original price., (b) excess supply at the original price, , (c) the supply curve shifting to the right., (d) the demand curve shifting to the left., , 65. If the elasticity of demand for a commodity is, perfectly inelastic then which of the following is, incorrect?, , (a) The commodity must be essential to those who, purchase it., , (b) The commodity must have many substitutes., , (c) The commodity will be purchased regardless of, increase in its price, , (d) The elasticity of demand for this commodity, must equal zero, , 66. If a good has price elasticity greater than one, then:, , (a) demand is unit elastic and a change in price, does not affect sellers’ revenue., , (b) demand is elastic and a change in price causes, sellers’ revenue to change in the opposite, direction, , (c) demand is inelastic and a change in price, causes sellers’ revenue to change in the same, direction., , (d) None of the above is correct., , 9990709550 / 9990709500

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Demand & Supply, , 67. if an increase in the price of blue jeans leads to, an increase in the demand for tennis shoes, then, , blue jeans and tennis shoes are, (a) complements {b) inferior goods., (c) normal goods. {d) substitutes, , 68. Consumer surplus Is the area, (a) below the demand curve and above the price, (b) above the supply curve and below the price., , (c) above the demand curve and below the price, (d) below the supply curve and above the price., 69. If a fisherman must sell all of his dally catch, , before it spoils for whatever price he is offered,, oe oe Se ee ee ene baer, elasticity of supply for fresh fish is, (a) zero., (b) infinite., (c) one., (d) unable to be determined from this information., 70. if consumers always spend 15 percent of their, income on food, then the income elasticity of, demand for food is ,, (a) 1.50 (b) 1.15, (c) 1.00 (d) 0.15, 71. Suppose that the price of @ new bicycle is Rs., 200. Natalie values a new bicycle at Rs. 400., What is the value of total consumer surplus if, , Natalie buys a new bike?, (a) Rs. 600 (b) Rs. 300, (c) Rs. 200 (d) Rs. 400, , 72. Suppose that at a price of Rs 300 per month,, there are 30,000 subscribers to cable television, in Small Town. If Small Town Cablevision raises, its price to Rs. 400 per month, the number the, elasticity, what is the price elasticity of demand, , for cable TV in Small Town?, (a) 14 (b) 0.66, (c) 0.75 (d) 2.0, 73. if a buyer's ness to pay for a new car is, Rs. 200,000 and she is able to actually buy it for, Rs.1,80,000 her consumer surplus is, (a) Rs.18,000 (b) Rs.20,000, (c) Rs. 2,000 (d) Rs.0, , 74. Suppose thore are throe identical vases availablo, to be purchased. Buyer 1 is willing to pay Rs 30, for one, buyer 2 is willing to pay Rs 25 for one,, and buyer 3 is willing to pay Rs 20 for one. If the, price is Rs 25, how many vases will be sold and, what is the value of consumer surplus in this, market?, , (a) Three vases vill be sold and consumer surplus, is Rs. 80., , (b) One vase will be sold and consumer surplus is, Rs. 5., , (c) One vase will be sold and consumer surplus is, Rs.30, , (d) Two vases will be sold and consumer surplus is, Rs, 5., , By Rakesh Choudhary, , Page |2.5, , 75. If an increase in consumer incomes leads to a, decrease in the demand for camping equipment,, then camping equipment is, (a) a normal good, (b) none of these answers., , (c) an inferior good., (d) a substitute good., 76. Suppose consumer tastes shift toward the, consumption of apples. Which of the following, Statements is an accurate description of the, impact of this event on the market for apples?, (a) There is an increase in the quantity demanded, of apples and in the supply for apples., , (b) There is an increase in the demand and supply, of, , (c) There is an increase in the demand for apples, and a decrease in the supply of apples., , (d) There is an increase in the demand for apples, and an increase in the quantity supplied, , 77. A buyer's willingness to pay is that buyer's:, , (a) minimum amount he is valling to pay for a good., (b) producer surplus, (c) consumer surplus., (d) maximum amount he is vailing to pay for a good, , 78. For goods increase in income leads to, increase in demand, (a) Abnormal (b) Normal, (c) Inferior (d) Superior, , 79. What is the price elasticity of demand when,, price changes from Rs.10 to Rs.12 and, correspondingly demand changes from 6 units, , to 4 units?, (a) 0.833 (b) 1.6, (c) 22 (d) 1.833, , 80. What is the new quantity demanded when price, elasticity is 1 and price changes from Rs.15 to, Rs.10 and the original quantity demanded was 10, units?, , (a) 15 units (b) 20 units, (c) 8 units (d) 12 units, , 81. What is the original price of a commodity when, price elasticity is 0.71 and demand changes from, 20 units to 16 units and the new price is Rs. 107, (a) Rs, 15 (b) Rs. 18, (c) Rs. 20 (d) Rs. 8, , Read the following table and answer question, number 82 -83, , , , , , , , , , , , , , , , , , , , , , Table 3, Number of Total utility Marginal, products utility, , 0 0 :, , 1 1800, , 2 3400, , 3 4800, , 4 6000, , 5 7000, , 6 7800, , 9990709550 / 9990709500