# Demand-Theory-mcq

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Economics Theory of Demand – MCQ

1. For a want to become a demand, it must be backed by the:

(a)    Financial ability to purchase the product

(b)    Necessity to purchase the product

(c)    Desire to buy the commodity

(d)    Utility of the commodity.

For a want to be demand there should be ability to purchase the product only necessity or desire to buy the product does create demand. So, option (a) is correct.

2. Which of the following is not a determinant of demand for a commodity?

(a)    Price of commodity

(b)    Income of the consumer

(c)    Prices of related goods

(d)    Supply of the commodity.

Price haves an inverse relationship with demand price is the determination of demand.

Increase is consumer’s income results in increase in demand. So, income also a determinant of demand. Price of related goods have a complimentary effect on the demand of a goods. Supply of commodity is not determinant of demand. Increase in supply will not decrease in demand or vice versa. So, option (d) is correct.

3. In case of Giffen goods, demand curve will slope :

(a)    upward

(b)    downward

(c)    horizontal

(d)    vertical.

In case of giffen goods, demand curve is upward rising. So, option (a) is correct.

4. The law of demand states that:

(a)    when income rises demand increases

(b)    when price rises demand rises

(c)    when price falls demand rises

(d)    when income and price rise demand rises.

Law of demand shows an inverse relationship between price and demand.  This means decrease in price results in increase in demand. So, option (c) is correct.

5. What type of relationship exists between the price and quantity demanded?

(a)    Direct

(b)    Inverse

(c)    Positive

(d)    Both a and b.

Increase in price results in decrease in demand and vice versa. So, there is inverse relationship between price and demand. Direct relationship means change in same proportion and same direction i.e. increase in price results in increase in demand. So, option (b) is correct.

6. The Demand curve slopes:

(a)    Downward from left to right

(b)    Upward from left to right

(c)    Upward from right to left

(d)    Downward from right to left

There is a inverse relationship between demand and price. So, demand curve slopes downward from left to right. So, option (a) is correct.

7. Extension or contraction of quantity demanded of a commodity is a result of:

(a)    a change in price

(b)    a change in income

(c)    a change in tastes & choice

(d)    a change in environment.

Extension or contraction of demand occurs due to a change in price. So, option (a) is correct.

8. Upward or downward shift of the demand curve shows:

(a)    change in taste

(b)    change in price

(c)    change in demand

(d)    change in income

Upward or downward shifting of the demand curve shows the change in demand. So, option (c) is correct.

9. Which of the following explains the effect of a change in price on the consumption of        goods/services?

(a)    Shift in demand

(b)    Increase in demand

(c)    Change in demand

(d)    Extension in demand.

The effect of a change in price on the consumption of goods/services explains change in demand. So, option (c) is correct.

10. Fall in quantity demanded of a good as result of rise in price is also known as:

(a)    Demand effect

(b)    Contraction of demand

(c)    Expansion of demand

(d)    Absorption of the demand.

Due to increase in price, fall in demand is called contraction of demand. So, option (b) is correct.

11. Change in demand, as a result of the factors other than price is known as:

(a)    Demand movement

(b)    Contraction/expansion of demand

(c)    Demand effect

(d)    Shift in demand.

When due to change in factors other than price of the same commodity like change in taste, Income etc., the demand changes, the entire demand curve shifts either upwards or downwards. This is called a shifting of demands curve. So, option (d) is correct.

12. What type of goods does a consumer eventually stop purchasing after increase of his          income

(a)    Goods with positive income elasticity

(b)    Goods with negative income elasticity

(c)    Good with infinite income elasticity

(d)    None of these.

In case of goods having negative income elasticity, increase in income does not increase demand of the goods. Even if in these type of goods. Consumer eventually stop buying when his income rises. So, option (b) is correct.

13. Which of the following goods have a negative income elasticity of demand.

(a)    Luxury goods

(b)    Necessities

(c)    Normal goods

(d)    Inferior goods.

Inferior goods have a negative income elasticity of demands because whenever persons income increases, they stop buying inferior goods. Instead they start to buy superior goods. So, option (d) is correct.

14. The demand for four-wheelers is likely to decline with an rise in petrol prices because four-      wheelers and petrol are:

(a)    Inferior goods

(b)    Luxury goods

(c)    Complementary goods

(d)    Substitutes goods.

In case of complementary goods, increase of price of goods results in decrease of demand of relative goods. Here petrol and two-wheelers are complimentary goods. increase in petrol price results in decrease in demand of four-wheeler. So, option (c) is correct.

15. When the price of steel goes up, demand for cement in the construction sector decreases.       Steel and cement are:

(a)    Complementary goods

(b)    Substitutes goods

(c)    Inferior goods

(d)    Luxury goods.

In case of complimentary goods increase in price of one goods result in decrease of demand of other relative goods. So, steel and cement are complimentary goods. So, option (a) is correct.

16. If two goods are complements, this implies that a rise in the price of one commodity will       induce:

(a)    vertical shift in demand for the other commodity

(b)    a downward shift in demand for the other commodity

(c)    an upward shift in demand for the other commodity

(d)    none of these.

In case of complementary goods, increase of price of one goods results in decrease of demand of relative goods. So, it brings a downward shift in demand for the other commodity. So, option (b) is correct.

17. Consumer’s reaction to a change in the relative prices of two products, keeping the total        utility constant is called

(a)    Consumer surplus

(b)    Income effect

(c)    Substitution effect

(d)    Supply effect.

Substitution effect means the change in the consumption or demand of two commodities as a result of their relative change in prices, the total utility remaining the same. So, option (c) is correct.

18. Effect of a change in the price of a product on the consumers’ purchasing power is called

(a)    Supply effect

(b)    Income effect

(c)    Substitution effect

(d)    Consumer surplus

Real income denotes consumer’s purchasing power. If price of a product decreases, the real income of a consumer rises and he purchase more units of the product. The demand curve slopes downward due to this income effect. This is called income effect for change in demand. So, option (b) is correct.

19. If tea and coffee are substitutes, a fall in the prices of tea leads to :

(a)    Rise in the demand for tea

(b)    Fall in the supply of coffee

(c)    Rise in demand for coffee

(d)    Fall in demand of coffee & Rise in the supply of tea

If tea and coffee are substitutes, a fall in the prices of tea leads to fall in the demand for coffee &  Rise in supply of tea. So, option (d) is correct.

20. If the price of any complement goods rises:

(a)    Demand curve shifts to left

(b)    Demand curve shifts to right

(c)    Demand curve moves downwards

(d)    Demand curve moves upward

In case of rise in the price of complement goods demand curve shifts to left.  So, option (a) is correct.

21. Assume the price of movies seen at a theatre increases from Rs.120 per person to Rs.200     per person. The cinema hall manager observes that the increase in price leads to a decline     in attendance at a given movie from 300 to 200 persons. What is then elasticity of demand for     movies:

(a)    .5

(b)    .85

(c)    1.0

(d)    1.25

Percentage change in price = (80/120) x 100 = 66.67%

Percentage change in attendance = (100/300) x 100 = 33.33%

Price elasticity of demand = 33.33/66.67 = .5. So, option (a) is correct.

22. The price of hot-dogs rises by 22% and the quantity demanded decline by 25% this indicates     that demand for hot dogs is:

(a)    Elastic

(b)    Perfectly inelastic

(c)    Unitary elastic

(d)    Negatively elastic

22% increase in price of hot-dogs brings decrease in demand for hot-dogs by 25%. So, demand for hot-dogs is elastic as elasticity = 25/22. So, elasticity is more than 1. So, the demand is Elastic. So, option (a) is correct.

23. If the quantity demanded does not respond to price change and so the elasticity is:

(a)    One

(b)    < 1

(c)    Zero

(d)    >1

If price change does not bring any change in quantity demanded, then, price elasticity of demand is zero. So, option (c) is correct.

24. The price of coffee increases by 44% and the quantity of coffee demanded falls by 50%.       This indicates that demand for coffee is:

(a)    Elastic

(b)    Inelastic

(c)    Zero

(d)    Perfectly inelastic

Price elasticity of demand = − % ∆Q / % ∆P = 25% / 22%. Which is greater than 1. Since elasticity > 1, demand for goods is elastic. So, option (a) is correct.

25. If the price of ‘coffee’ rises by 30 percent and the quantity demand falls by 30 percent, ‘coffee’ has”

(a)    Inelastic demand

(b)    Unit elastic demand

(c)    Negatively elastic demand

(d)    Perfectly elastic

Elasticity of Demand  = %∆ in demand / %∆ in price = 30 / 30 = 1, which refers to unit elastic demand. So, option (b) is correct.

26. Following method is used for measurement of price elasticity demand :

(a)    Percentage of change in demand/Percentage of change in price

(b)    Change in demand/Change in price

(c)    % change in price/% change in supply

(d)    All of these.

Price elasticity of demand = Percentage change in demand percentage change in price. So, option (a) is correct.

27. If the demand for a product reduces by 2% as a result of an increase in the price by 10%,  what is the price elasticity of demand for the product?

(a)    +0.20

(b)    -0.40

(c)    -0.20

(d)    +0.40

Price elasticity of demand = Percentage change in demand/Percentage change in price = (-2% / 10%) = – .20. So, option (c) is correct.

28. If the demand for footballs increases from 50 to 55 because of fall in price from Rs.25 to         Rs.24, what is the price elasticity of demand for footballs?

(a)    1.5

(b)    2.5

(c)    3.5

(d)    2.

Percentage change in demand of cricket balls = (+5 / 50) x 100 = 10%

Percentage change in price = {(1/25) x 100} = 4%. So price elasticity of demand = (10% / 4%) = 2.5%. So, option (b) is correct.

29. What is the price elasticity of demand for a good, if an increase in the price of the goods by 2% leads to fall in demand by 3%?

(a)    +1.5

(b)    -1.5

(c)    2.5

(d)    .04.

Price elasticity of demand = (Percentage change in demand / Percentage change in price) = (-3% / 2%) = -1.5%. So, option (b) is correct.

30.  A electronics goods dealer increased the price of camera from Rs.480 to Rs.500. Consequently, demand decrease to 1000 from 1100. Determine the price elasticity of demand for camera.

(a)    +2.18

(b)    -1.5

(c)    -2.18

(d)    +2.23.

Percentage change in price = [(20/480) x 100] = 4.2%. Percentage change in demand = (-100/1000) = -10%

Hence, Price elasticity of demand = (-10%/4.2) = -2.18. So, option (c) is correct.

31. Increase in Price from Rs.4 to Rs.6 then decrease in demand from 10 units to 5 units. What       is the price elasticity.

(a)    1

(b)    5

(c)    2.5

(d)    3

Percentage change in price = (2/4) x 100 = 50%. Percentage change in demand = (5/10) x 100 = 50%

So, Price elasticity of demand = 50% / 50% = 1. So, option (a) is correct.

32. Which Factor generally keeps the price-elasticity of demand for goods low:

(a)    Variety of uses for that good

(b)    Its low price

(c)    Close substitutes for that good

(d)    High proportion of the consumer’s income spent on the goods

Low price of the goods keeps the price elasticity of demand for goods low. So, option (b) is correct.

33. If the demand for petrol has no change in spite of increase in petrol prices, it means petrol       is a

(a)    Normal good

(b)    Necessary Goods

(c)    Luxury good

(d)    Complementary goods.

In case of goods of necessity, price change may not have adverse effect on the demand of the goods.

In case of other goods, price decrease result in more demand. So, option (b) is correct.

34. Usually, the demand for necessities is:————.

(a)    Highly elastic

(b)    Highly inelastic

(c)    Slightly elastic

(d)    Slightly inelastic.

In case of necessities, change in price does not have much effect in demand of necessities. So, in case of necessities, demand is highly inelastic. So, option (b) is correct.

35. For an inelastic good, a rise in its price will lead to———-.

(a)    Shift in demand for substitutes

(b)    Fall in demand

(c)    Demand increases initially but later decreases

(d)    No change in demand.

According to law of demand, increase in price results in decrease in goods, rise in price results in no change in demand. So, option (d) is correct.

36. Which of the following products has highly inelastic demand?

(a)    Jewellery

(b)    Camera

(c)    Salt

(d)    Furniture.

Demand for salt is highly inelastic because increase/decrease in price does not effect the demand of salt (as this is a necessary commodity). So, option (c) is correct.

37. Of the following commodities, which has the lowest elasticity of demand?

(a)    Car

(b)    Salt

(c)    Coffee

(d)    Jewellery.

Salt is an item of necessities. So, salt has a highly inelastic demand so, it will have lowest elasticity of demand. So, option (b) is correct.

38. The price elasticity of demand would be higher for those products which have:

(a)    A larger number of substitutes

(b)    Smaller substitutes

(c)    No substitutes

(d)    Non of these.

Price elasticity of demand would be higher for products having large number of substitute because an increase in price brings significant decrease in demand. So, option (a) is correct.

39. The demand for common salt has a low price elasticity because:

(a)    it has no close substitutes

(b)    it is a multi-use good

(c)    it constitutes only a small proportion of consumers expenditure.

(d)    a and c.

Common salt has a low elasticity because increase in price does not create any significant change in demand because salt does not have close substitute and it constitutes a small proportion of consumers expenditure. So, option (d) is correct.

40. If the good has few substitutes, it will be-

(a)    relatively inelastic

(b)    relatively elastic

(c)    perfectly elastic

(d)    elastic.

Demand for goods having a few substitute is relatively inelastic. So, option (a) is correct.

41. The price elasticity of demand for addictive products like cigarettes and alcohol would be:

(a)    Greater than 1

(b)    Less than 1

(c)    Infinity

(d)    Zero.

Price elasticity of demand for addictive products like cigarettes and alcohol is relatively inelastic. So, elasticity of demand for such products will be less than 1. So, option (b) is correct.

42. If price elasticity is zero, slope of the demand curve is

(a)    Less than one

(b)    One

(c)    More than one

(d)    Infinite.

If price elasticity of demand is zero, the slope of demand curve is infinite. So, option (d) is correct.

43. If elasticity value is greater than one, it is

(a)    inelastic

(b)    elastic

(c)    unitary elastic

(d)    all of these.

If elasticity value is greater than one, then it is elastic. So, option (b) is correct.

44. The elasticity value is less than one, it is

(a)    inelastic

(b)    elastic

(c)    unitary elastic

(d)    all of these.

If elasticity value is less than 1 then demand is inelastic. So, option (a) is correct.

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

(a)    Rise

(b)    Reduce

(c)    Remains unchanged

(d)    Either increase or decrease

In case of unitary elastic demand. Price rise of commodity brings no change on consumer’s total expenditure. So, option (c) is correct.

46. Value of elasticity of demand if the demand for the good is perfectly elastic

(a)    > 1

(b)    1

(c)    Infinity

(d)    Less than 0

In case of perfectly elastic demand, value is infinity. So, option (c) is correct.

47. The value of elasticity co-efficient varies between.

(a)    Zero and Infinity

(b)    Zero and five

(c)    One and Infinity

(d)    All of the above

The value of elasticity co-efficient varies between zero to infinity i.e. (E=0, E<1, E=1, E>1 and E=infinity). So, option (a) is correct.

48. If the demand for a good is unit elastic, the value of elasticity of demand would be:

(a)    0

(b)    1

(c)    Infinite

(d)    Less than 0.

In case of unit elasticity,  the value of elasticity of demand is 1. So, option (b) is correct.

49. Barun whose monthly income is Rs.2,000, consumes 4 kg. of fish per month. When his         income increased to Rs.2,400, his fish consumption also increased to 5 kgs. Determine         the income elasticity of fish.

(a)    1

(b)    0.5

(c)    2.5

(d)    1.25.

Percentage change in income = [(400/2,000) x 100] = 20%. Percentage change in demand = [(+1/4) x 100] = 25%

Hence, Income elasticity of demand = (25%/20%) = 1.25. So, option (d) is correct.

50. Income elasticity of demand is expressed as:

(a)    percentage change in quantity demanded with respect to percentage change in income

(b)    percentage change in income with respect to percentage change in quantity demanded

(c)    ratio of proportionate change in quality demanded

(d)    all of the above.

Income elasticity of demand = Percentage change in demand/percentage change in income. So, option (a) is correct.

51. Demand for inferior goods falls with:

(a)    Increase in income

(b)    Decrease in income

(c)    Change in taste

(d)    Change in climate.

With increase in income, demand for inferior goods declines. So, option (a) is correct.

52. Income elasticity of demand is negative in case of:

(a)    Normal goods

(b)    Durable goods

(c)    Inferior goods

(d)    Luxury goods.

In case of inferior goods, increase in income reduces the demand of inferior goods. So, option (c) is correct.

53. If a good is a luxury, its income elasticity of demand is:

(a)    Positive and less than 1

(b)    Negative

(c)    Positive and greater than 1

(d)    Infinite

Increase in income has a positive effect on demand of a luxury goods. Hence their elasticity of demand positive and greater than 1. So, option (c) is correct.

54. Compute income elasticity if demand increases by 5% and income by 1%

(a)    5

(b)    1/5

(c)    10

(d)    None

Income elasticity of demand = Percentage change in demand / percentage change in income = 5% / 1% = 5. So, option (a) is correct.

55. What is income elasticity of demand, when income changes by 20% and demand changes       by 40%

(a)    1/2

(b)    2

(c)    .66

(d)    4

Income  elasticity of demand = Percentage change in demand / Percentage change in income = 40% / 20% = 2. So, option (b) is correct.

56. What is income elasticity of demand, when income changed by 20% and demand         changes by 40%?

(a)    ½

(b)    2

(c)    3

(d)    1.5.

Elasticity of Demand  = (Percentage change in demand/Percentage change in income) = (40%/20%) = 2. So, option (b) is correct.

57. The responsiveness of the change in quantity demanded of one commodity due to a          change in the price of another commodity is known as:

(a)    price elasticity of demand

(b)    income elasticity of demand

(c)    cross-elasticity of demand

(d)    all of the above.

The responsiveness of the change in quantity demanded of one commodity due to a change in the price of another commodity is known as: cross-elasticity of demand. So, option (c) is correct.

58. Which of the following statements regarding cross elasticity is true?

(a)    It is always negative

(b)    It is always positive

(c)    It can be either positive or negative.

(d)    All of the above.

Cross elasticity can be either positive or negative. So, option (c) is correct.

59. If two products are good substitutes, the value of cross elasticity will be————–.

(a)    Negative

(b)    Positive

(c)    Zero

(d)    None of these.

In case of products which are goods substitute, the value of cross elasticity of demand will be positive. So, option (b) is correct.

60. The cross elasticity between tea and sugar is :

(a)    Less than 0

(b)    Greater than 1

(c)    One

(d)    Infinity.

Tea and sugar are complimentary goods. So cross elasticity of demand between tea and sugar will be less than zero. So, option (a) is correct.

61. Complementary goods like coffee and sugar have a ————-cross elasticity.

(a)    Negative

(b)    Positive

(c)    One

(d)    Infinite.

Complementary goods like coffee and sugar have cross elasticity of less than zero, so it is negative. So, option (a) is correct.

62. Cross elasticity of demand in Monopoly market is:

(a)    Inelastic

(b)    Zero

(c)    Infinite

(d)    Between 1 & 0

Monopoly product has no substitute. So, cross elasticity of demand in monopoly market is zero. So, option (b) is correct.

63. Other things remaining the same when an individual’s income rises his demand for normal goods:

(a)    Increases

(b)    Declines

(c)    Remains unchanged

(d)    All of the above.

Increase in income and demand of normal goods have a positive relationship. So, increase in income will result in rise in demand of normal goods. So, option (a) is correct.

64. Which one of the following activity is NOT consumption?

(a) Burning of buses

(b) Seeing a cinema

(c) Taking a glass of milk

(d) Smoking a cigar.

In case of seeing a cinema, taking a glass of milk, smoking a cigar, utility is consumed. But in case of burning a bus, no utility consumed. So, option (a) is correct.

65. A fall in the price of a commodity leads to:

(a)    a shift in demand

(b)    a rise in consumers real income

(c)    a decline in demand

(d)    a decline in the consumers real income.

Fall in the price of a commodity results in increase of purchasing power of consumer. So, it increases the real income of consumers. So, option (b) is correct.

66. Complementary goods Dot Pen and Refill have a —————cross elasticity.

(a)    Negative

(b)    Positive

(c)    Zero

(d)    Infinite.

Dot pen and refill have negative cross elasticity of demand because increase in demand of pen will increase  demand of refill. So, option (a) is correct.

67. The consumer is in equilibrium at a point where the budget line:

(a)    Horizontal to an indifference curve

(b)    Is below an indifference curve

(c)    Is tangent to an indifference curve

(d)    Perpendicular to an indifference curve

The consumer is in equilibrium at a point where the budget line is tangent to an indifference curve, because it can not intersect the Indifference Curve either from above or below. So, option (c) is correct.

68. In 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:

(a)    > 1

(b)    1

(c)    Between 0 & 1

(d)    < 1

In case of straight line demand curve meeting the two axes, the price elasticity of demand at the mid-point of the line would be 1. So, option (b) is correct.