C. Relationship between price and quantity demanded
D. Relationship between production and cost
A demand schedule is a table showing the quantities of a good that consumers are willing to purchase at different prices.
2. Which of the following is not a factor behind the demand curve?
A. Cost of production
B. Consumer income
C. Price of substitutes
D. Consumer tastes and preferences
Cost of production influences supply, not demand. Factors behind demand include income, prices of related goods, tastes, and expectations.
3. If the price of tea increases, and consumers buy more coffee instead, this is an example of:
A. Income effect
B. Demand contraction
C. Law of supply
D. Substitution effect
When consumers switch to a cheaper substitute due to price rise of a good, it is called the substitution effect.
4. A demand schedule indicates that at ₹20 per unit, demand is 100 units, and at ₹40 per unit, demand is 60 units. What does this illustrate?
A. Law of supply
B. Law of demand
C. Price rigidity
D. Income effect
The law of demand states that, other things being equal, when price rises, quantity demanded falls, and vice versa.
5. Which of the following scenarios will shift the entire demand curve to the right?
A. Fall in price of the good itself
B. Increase in production cost
C. Rise in consumer income (for normal goods)
D. Decrease in consumer income (for normal goods)
Higher income increases purchasing power for normal goods, shifting the demand curve outward (to the right).
6. An increase in the price of a substitute good (like Pepsi for Coca-Cola) will cause the demand curve for Coca-Cola to:
A. Shift to the right
B. Shift to the left
C. Remain unchanged
D. Become perfectly elastic
If the price of a substitute increases, consumers shift demand towards the relatively cheaper option, causing the demand curve of that good to shift rightward.
7. A fall in consumer income for a normal good will:
A. Cause movement along the demand curve
B. Increase demand for the good
C. Leave the demand curve unaffected
D. Shift the demand curve to the left
For normal goods, a decrease in consumer income reduces purchasing power, shifting the demand curve to the left.
8. The supply schedule shows:
A. Relationship between price and demand
B. Relationship between price and quantity supplied
C. Relationship between income and consumption
D. Relationship between wages and employment
A supply schedule is a table showing the quantity of a good a producer is willing to supply at various prices.
9. According to the law of supply, when the price of a commodity rises, its quantity supplied:
A. Falls
B. Remains constant
C. Increases
D. Becomes perfectly inelastic
The law of supply states that, other things being equal, an increase in price leads to an increase in quantity supplied.
10. A farmer is willing to sell 200 kg of wheat at ₹25 per kg, but only 120 kg at ₹15 per kg. This illustrates:
A. Law of demand
B. Law of supply
C. Price elasticity of demand
D. Diminishing marginal utility
The supply schedule reflects that higher prices encourage producers to supply more of the good, confirming the law of supply.
11. Which of the following is not a factor affecting supply?
A. Cost of production
B. Technology
C. Price of related goods
D. Consumer tastes and preferences
Consumer tastes and preferences affect demand, not supply. Supply depends on cost of production, technology, prices of related goods, government policy, etc.
12. Improvement in production technology generally causes the supply curve to:
A. Shift to the right
B. Shift to the left
C. Remain unchanged
D. Become perfectly inelastic
Better technology reduces production cost and increases output at the same price, shifting the supply curve rightward.
13. If the government imposes higher taxes on a product, the supply curve will:
14. When the price of a related good increases, and producers divert resources to produce that good, the supply of the original good will:
A. Increase
B. Remain constant
C. Decrease
D. Become independent of price
Producers shift resources to the more profitable good, reducing supply of the original good, thus supply curve shifts left.
15. A fall in the cost of raw materials will cause the supply curve to:
A. Shift to the left
B. Stay unchanged
C. Become perfectly elastic
D. Shift to the right
Lower raw material cost reduces production cost, encouraging producers to supply more at the same price, shifting the supply curve rightward.
16. Market equilibrium is achieved when:
A. Quantity supplied exceeds quantity demanded
B. Quantity demanded exceeds quantity supplied
C. Quantity demanded equals quantity supplied
D. Price is set by government policy
Market equilibrium occurs when the quantity consumers demand equals the quantity producers supply, determining the equilibrium price and output.
17. At a price higher than equilibrium price, there will be:
A. Excess supply (surplus)
B. Excess demand (shortage)
C. Market equilibrium
D. No impact on supply and demand
When price is above equilibrium, producers supply more but consumers buy less, creating surplus in the market.
18. When demand increases and supply remains unchanged, the new equilibrium price will:
A. Fall
B. Rise
C. Remain unchanged
D. Fall to zero
Higher demand with the same supply pushes the equilibrium price upward, leading to a higher equilibrium quantity as well.
19. If supply increases while demand remains constant, the equilibrium price will:
A. Rise
B. Remain unchanged
C. Become infinite
D. Fall
With greater supply and unchanged demand, producers reduce prices to sell extra output, shifting equilibrium price downward.
20. When both demand and supply increase simultaneously, equilibrium quantity will:
A. Always decrease
B. Always increase
C. Remain the same
D. Cannot be determined without knowing the magnitude of shifts
If both demand and supply increase, equilibrium quantity definitely rises, but the effect on equilibrium price depends on the relative magnitude of shifts.
21. If demand increases while supply decreases simultaneously, the equilibrium price will:
A. Always fall
B. Always remain the same
C. Always rise
D. Cannot be determined
Higher demand and lower supply put upward pressure on price, ensuring equilibrium price rises, though the effect on equilibrium quantity depends on the magnitude of shifts.
22. If supply increases more than demand, what happens to the equilibrium price?
A. It falls
B. It rises
C. It remains unchanged
D. It becomes indeterminate
When supply grows faster than demand, excess supply is created, leading to a fall in equilibrium price.
23. A leftward shift of the demand curve with no change in supply will result in:
A. Higher equilibrium price and higher quantity
B. Higher equilibrium price and lower quantity
C. Same price but lower quantity
D. Lower equilibrium price and lower quantity
A decrease in demand shifts the curve leftward, reducing both equilibrium price and equilibrium quantity.
24. Which of the following best explains a simultaneous increase in price and quantity of a product in the market?
A. Supply increased, demand remained constant
B. Demand increased, supply remained constant
C. Both supply and demand decreased
D. Government imposed price ceiling
An increase in demand with constant supply results in both higher price and higher equilibrium quantity.
25. A fall in price accompanied by an increase in equilibrium quantity indicates:
A. A rightward shift in supply
B. A leftward shift in demand
C. A fall in consumer income
D. Government-imposed price floor
A supply curve shifting to the right lowers prices but raises the equilibrium quantity, which matches the given condition.
