UNIT 1: LAW OF DEMAND & ELASTICITY OF DEMAND
Meaning of Demand
1. Demand for a commodity refers to:
(a)Desire backed by ability to pay for the commodity.
(b)Need for the commodity and willingness to pay for it.
(c)The quantity demanded of that commodity at a certain price.
(d)The quantity of the commodity demanded at a certain price during any particular period of time.
2.The term ‘demand’ refers to:
(a)Demand of money
(b)Need for the commodity
(c)Need for services
(d)The quantity of a good or service that buyers are willing and able to purchase at various prices during a given period of time
[Dec. 2021]
3.Demand is the:
(a) The desire for a commodity given its price and those of related commodities.
(b)The entire relationship between the quantity demanded and the
price of a good other things remaining the same.
(c)Willingness to pay for a good if income is larger enough.
(d)Ability to pay for a good.
4.The quantity demanded is always expressed ________________.
(a)Separately in isolation
(b)Separately with quantity supplied
(c)At a given price
(d)None of these
5.Which of the following statement is correct?
(a)With the help of statistical tools, the demand can be forecasted accurately.
(b)The more the number of substitutes of a commodity, more elastic is the demand.
(c)Demand for butter is perfectly elastic.
(d)Gold jewellery will have negative income elasticity.
[Nov. 2019]
6.The demand for a firm’s product when expressed as a percentage
of industry demand it signifies the ____________ of the firm.
(
a) Product share
(b) Market share
(c) Demand
(d) Supply
[June 2022]
7. The quantity demanded is a _______
(
a) Flow
(b) Stock
(
c) Single isolated purchase
(d) Concept without reference to time
8. Effective demand depends on:
(a) Price
(b) Cost
(
c) Desire
(d) Product
[Jan. 2021]
9. In economics, Effective Demand for a thing depends on :
(a) Desire
(b) Means to purchase
(
c) Willingness to use those means for that purchase
(d) All of the above
Determinants of Demand
10 All of the following are determinants of demand except:
(a) Tastes and preferences.
(b) Quantity supplied.
(c) Income of the consumer.
(d) Price of related goods.
11. _______________ is not a determinant of demand for commodity.
(
a) Price of substitute commodities
(b) Price of complementary goods
(
c) Consumer expectations about future price of the commodity
(d) Quantity of stock of the commodity
12. Which of the following is not a determinant of the demand for a good?
(a) Its cost of production
(b) Expectations
(c) The prices of related products
(d) Preferences
[MTP Jan. 2025]
13. Which is not an important factor that determines demand?
(a) Price of commodity
(b) Disposable income of consumer
(c) Tastes and preferences of buyers
(d) Educational qualification of buyer
[Dec. 2021]
14. Price of goods expresses value of _________.
(a) Exchange
(b) Cost
(c) Demand
(d) Fair
[June 2023]
15. Which of the following will affect the demand for non-durable goods?
(a) Disposable income
(b) Price
(c) Demography
(d) All of the above
[CA CPT May 2019]
16. What is not a determinant of demand?
(a) Consumer’s expectations
(b) Consumer’s tastes and preferences
(c) Income of the consumers
(d) Prices of unrelated goods.
[Jan. 2021]
17. What will happen to demand when a larger proportion of people belong to older age groups relative to younger age groups?
(
a) There will be increased demand for children’s books.
(b) There will be increased demand for geriatric care services, spectacles and walking sticks etc.
(
c) There will be increased demand for normal goods and services.
(d) There will be decreased demand for goods and services.
[Sep. 2025]
18. How does an increase in the income of consumers generally affect the demand for normal goods?
(a) It decreases the demand
(b) It has no effect on the demand
(c) It increases the demand
(d) It makes the demand more elastic [Sep. 2025]
19. The term “Ceteris Paribus” refers to _____________.
(
a) Other things being equal
(b) Other things also change
(c) Other things may change
(d) None of the above
20. Other things being equal, the demand for a good and the price of its complement has:
(a) Positive relationship
(b) Direct relationship
(c) Inverse relationship
(d) Proportional relationship
[Jan. 2026]
21 Ceteris Paribus, the demand for a commodity is inversely related to its price. This happens because of :
(a) Income Effect
(b) Substitution Effect
(c) Both (a) & (b)
(d) None of above
22. ‘Ceteris Paribus’ is a Latin phrase that generally means:
(a) All other things being equal
(b) An inverse relationship
(c) Income of consumers
(d) Tastes and preferences of consumers
[Jan. 2025]
23. With fall in price of commodity, demand of the commodity increases as it becomes relatively cheaper in comparison to other commodities. This effect is known as:
(a) Substitution Effect
(b) Income Effect
(c) Law of Demand
(d) Law of diminishing Returns
[MTP Dec. 2024]
24 ___________________ is/are the types of Related Commodities.
(a) Complementary
(b) Substitutes
THEORY OF DEMAND AND SUPPLY
(c) Complementary and Substitutes
(d) Complementary or Substitutes
25. If we notice that an increase in the price of product X causes reductions in the demand for product Y, then we can conclude that these two products are:
(a) Complements in consumption.
(b) Substitutes in consumption.
(c) Complements in production.
(d) Substitutes in production.
[MTP Jan. 2025]
26. The increase in demand on account of an increase in real income is known as:
(a) Substitution effect
(b) Income effect
(c) Marginal effect
(d) Demand effect
27. Which one of the following set of Commodities represents Complementary goods?
(a) Tea and Sugar
(b) Automobile and Petrol
(c) Pen and ink
(d) All of the above
28. Which of the following is not a set of complementary goods?
(a) Car & Petrol
(b) Electricity & Electrical Gadgets
(
c) Bread & Jam
(d) Blazer & Jacket
[May 2026]
29. __________ are those goods which are consumed together or simultaneously.
(a) Complementary
(b) Substitutes
(c) Similar
(d) Unrelated
30. Goods which are inferior, with no close substitutes easily available and which occupy a substantial place in consumer’s budget are called _____________ goods.
(a) Speculative
(b) Prestige
(c) Conspicuous
(d) Giffen
[July 2021]
31. For Giffen good the angle Curve is:
(a) Vertical
(b) Horizontal
(c) Negatively Sloped
(d) Positively Sloped
[MTP Jan. 2025]
32. Commodities for which the quantity demanded rises only up to a certain level of income and decreases with an increase in income beyond this level are called:
(a) Normal goods
(b) Inferior goods
(c) Essential goods
(d) Luxury goods [May 2025]
33. When two commodities are complementary, a fall in the price of one (other things being equal) will cause the demand for the other to ________________.
(a) Fall
(b) Rise
(c) Remain constant
(d) Fall substantially
34. Two Commodities are called _________________ when they satisfy the same want and can be used with ease in place of one another.
(a) Substitutes
(b) Complementary
(c) Unrelated
(d) Opposite
35. There is a ___________ relation between the demand for a product and the price of its substitutes.
(a) Direct
(b) Positive
(c) Indirect
(d) Both (a) & (b)
36. In case of Veblen goods, the demand curve is:
(a) Horizontal
(b) Vertical
(
c) Upward sloping to the right
(d) Downward sloping to the right [June 2022]
37. Highly priced goods are consumed by status seeking rich people to satisfy their need for conspicuous consumption. This is called as:
(a) Veblen Effect
(b) Snob Effect
(c) Helen Effect
(d) None of these [July 2021]
38. Highly priced goods are consumed by status seeking rich people to satisfy their need for conspicuous consumption. This is called:
(a) Demonstrative effect
(b) Bandwagon effect
(c) Snob effect
(d) Veblen effect [May 2025]
39. Name the term which refers to the demand for consumer goods which is decreased owing be the fact that others are also consuming the same commodity.
(a) Halo effect
(b) Snob effect
(c) Veblen effect
(d) Demonstration effect
40. When some people start investing money in share market then many people start following the same without considering its advantage and disadvantages is called:
(a) Demonstration effect
(b) Snob effect
(c) Veblan effect
(d) None of these [MTP Dec. 2024]
41. The value of the product or service is enhanced as the number of individuals using it increases. What effect is this?
(a) Veblen Effect
(b) Bandwagon Effect
(c) Income Effect
(d) Snob Effect [May 2025]
42. Consumption of high-priced goods by status seeking rich people for conspicuous consumption is called as ____
(a) Snob effect
(b) Bandwagon effect
(c) Demonstration effect
(d) Veblen effect [June 2024]
43. _________________ are the commodities for which the quantity demanded rises only up to a certain level of income and decreases with an increase in money income beyond this level.
(
a) Inferior Goods
(b) Normal Goods
(c) Consumption Goods
(d) Durable Goods
44. The substitution effect will be what when the price of the product falls?
(a) Zero
(b) Negative
(
c) Positive
(d) Lower cost
47. Snob effect is explained as:
(a) It is a function of consumption of others
(b) It is a function of price
(c) Both (a) and (b)
(d) None of these
[RTP Jan. 2025]
48. The substitution effect will be stronger when:
(
a) The goods are closer substitutes
(b) There is lower cost of switching to the substitute good
(c) There is lower inconvenience while switching to the substitute good.
(d) All of these
[June 2022]
45. Mr. X and Mr. Y are rich rivals and, in a party, Mr. X wears an expensive dress and on seeing it Mr. Y who also has the same dress decided to reject the use of the same dress further. Rather Mr. Y will try to use an even more expensive one. Which effect affects Mr. Y?
(a) Bandwagon Effect
(b) Demonstration Effect
(
c) Snob Effect
(d) Veblen Effect
[Sep. 2024]
46. When goods are substitutes, a fall in the price of one (Ceteris Paribus) leads to in the quantity demanded of its substitutes?
(a) Rise
(b) Fall
(c) Constant
(d) No effect
[RTP Sep. 2024]
49. A group of people decrease or altogether stop consumption of a common to which of the following effect?
(a) Bandwagon effect
(b) Veblen effect
(c) Snob effect
(d) Marshall effect
[July 2021]
50. The term demonstration effect was coined by _____________.
(a) Hicks
(b) Veblen
(c) James Duesenberry
(d) Marshall
[Dec. 2021]
51. Which of the following will affect the demand for non-durable goods?
(a) Disposable income
(b) Price
(c) Demography
(d) All of the above
52. 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.
[MTP Jan. 2025]
53. The management of firm A observed that every time there is an increase in the price charged by firm B, the level of sales of firm A declines. But when firm C increases its price, the level of sales of firm A increases. From this we can conclude that:
(
a) Firms A and B produce substitutes in consumption.
(
(
b) Firms A and C produce substitutes in consumption.
c) Firms A and B produce unrelated in consumption products.
(d) Firms A and C produce unrelated in consumption products
[MTP Jan. 2025]
54. If the price of a good increases, then:
(
a) The demand for complementary goods will increase.
(b) The demand for the good will increase.
(c) The demand for substitute goods will increase.
(d) The demand for the good will decrease.
[MTP Jan. 2025]
55. When the price of petrol decreases, people reduce the consumption of diesel, then the goods are:
(a) Complementary
(b) Substitutes
(c) Superior
(d) Any of the above [Nov. 2020]
56. If the price of Pepsi decreases relative to the price of Coke and 7-UP, the demand for:
(a) Coke will decrease.
(b) 7-Up will decrease.
(c) Coke and 7-UP will increase.
(d) Coke and 7-Up will decrease.
57. Which of the following is an incorrect statement?
(
a) When goods are substitutes, a fall in the price of one (ceteris paribus) leads to a fall in the quantity demanded of its substitutes.
(b) When commodities are complements, a fall in the price of one (other things being equal) will cause the demand of the other to rise.
(
c) As the income of the consumer increases, the demand for the commodity increases always and vice versa.
(d) When a commodity becomes fashionable people prefer to buy it and therefore its demand increases.
58. What will happen in the rice market if buyers are expecting higher rice prices in the near future?
(a) The demand for rice will increase.
(b) The demand for rice will decrease.
(c) The demand for rice will be unaffected.
(d) None of the above.
59. Articles of prestige value used by rich people as status symbol for increasing their social prestige and/ or for displaying wealth is known as:
2.8
(a) Speculative goods
THEORY OF DEMAND AND SUPPLY
(b) Conspicuous goods
(c) Giffen goods
(d) Inferior goods
[May. 2026]
60. Conspicuous goods are also known as:
(
a) Prestige goods.
(b) Snob goods.
(c) Veblen goods.
(
d) All of the above.
61. A good which cannot be consumed more than once is known as:
(
a) Durable good
(b) Non-durable good
(c) Producer good
(d) None of the above
62. A relative price is:
(
a) Price expressed in terms of money.
(b) What you get paid for baby-sitting your cousin.
(
c) The ratio of one money price to another.
(d) Equal to a money price.
63. The price of tomatoes increases and people buy tomato puree. You infer that tomato puree and tomatoes are:
(
a) Normal goods.
(b) Complements.
(
c) Substitutes.
(
d) Inferior goods.
64. Chicken and fish are substitutes. If the price of chicken increases, the demand for fish will____________.
(a) Increase or decrease but the demand curve for chicken will not change.
(b) Increase and the demand curve for fish will shift rightwards.
(
c) Not change but there will be a movement along the demand curve for fish.
(d) Decrease and the demand curve for fish will shift leftwards.
65. If the price of X commodity increases and due to that the demand for Y commodity increases, then X and Y goods are ____________.
(a) Complementary
(b) Substitutes
(c) Normal
(d) Giffen
66. Potato chips and popcorn are substitutes. A rise in the price of potato chips will __________ the demand for popcorn and the quantity of popcorn will ________.
(a) Increase; increase.
(b) Increase; decrease.
(c) Decrease; decrease.
(d) Decrease; increase.
67. Increase in price of pulses leads to increase in demand of green vegetables. The pulses and green vegetables are _____________.
(a) Substitutes
(b) Complimentary goods
(c) Normal goods
(d) None of the above [June 2023]
68. When some people start investing money in the share market, then many people start following the same without considering its advantages and disadvantages. This is an example of:
(a) Veblen effect
(b) Bandwagon Effect
(c) Snob Effect
(d) Sheep Effect
[Jan. 2025]
69. “High priced goods consumed by status seeking rich people to satisfy their need for conspicuous goods” is:
(a) Veblen effect
(b) Bandwagon effect
(c) Snob effect
(d) Demonstration effect
[CA CPT May 2018]
70. Which of the following is the price at which the quantity demanded of a commodity is equal to the quantity supplied of the commodity and there is no unsold stock or no unsupplied demand?
(a) Selling price
(b) Asking price
(c) Future price
(d) Market clearing price
[July 2021]
71. If the price of Orange Juice increases, the demand for Apple Juice will ___________.
(a) Increase
(b) Decrease
(c) Remain the same
(d) Become negative
72. At higher prices people demand more of certain goods not for their worth but for their prestige valueThis is called ____________.
(a) Veblen effect.
(b) Giffen paradox.
(c) Speculative effect
(d) None of the above
73. With a fall in the price of a commodity:
(a) Consumer’s real income increases.
(b) Consumer’s real income decreases.
(c) There is no change in the real income of the consumer.
(d) None of the above.
74. With an increase in the price of diamond, the quantity demanded also increases. This is because it is a:
(a) Substitute good.
(b) Complementary good.
(c) Conspicuous good.
(d) None of the above.
75. When the price of tea decreases, people reduces the consumption of coffee. Then the goods are:
(a) Complementaries
(b) Substitutes
(c) Inferior goods
(d) Normal goods
[CA CPT May 2019]
76. If a short run supply curve is plotted for the following table which presents price and quantity of fighter aircrafts, what will be its shape?
Price in millions of $ Number of Aircrafts
(a) Horizontal straight line parallel to the quantity axis
(b) Steeply rising with elasticity less than one
(
c) Vertical straight line parallel to Y axis
(d) A perfectly elastic supply curve
Demand Function
77. A Symbolic statement of a relationship between the dependent and the independent variables is called as _____________.
(a) Function
(b) Sets
(c) Equation
(d) Variable
78. In a demand function, the demand for a product is the __________.
(
a) Independent Variable
(b) Explanatory Variable
(
c) Dependent Variable
(d) Complex Variable
79. In a demand function, the determinants of demand like price, money income, tastes & preferences, etc. may be regarded as:
(a) Dependent Variables
(b) Independent Variables
(c) Related Variables
(d) Complex Variables
80. The demand curve of a normal good has shifted to the right. Which of the four events would have caused the shift?
(a) A fall in the price of a substitute with the price of the good unchanged
(
b) A fall in the nominal income of the consumer and a fall in the price of the normal good
(
c) A fall in the price of a complementary good with the price of the normal good unchanged
(d) A fall in the price of the normal good, other things remaining the same
The Law of Demand
81. The Law of Demand, assuming other things to remain constant, establishes the relationship between:
(a) Income of the consumer and the quantity of a good demanded by him.
(b) Price of a good and the quantity demanded.
(c) Price of a good and the demand for its substitute.
(d) Quantity demanded of a good and the relative prices of its complementary goods.
82. What are exceptions to Law of Demand?
(a) Law of Diminishing Marginal Utility
(b) Substitution effect
(c) Conspicuous goods
(d) Different uses
[Jan. 2021]
83. When Price of a commodity increases what will be the affect on Quantity demanded?
(a) Increases
(b) Decreases
(c) No change
(d) None of these
[CA CPT Nov. 2018]
84. The substitution effect works to encourage a consumer to purchase more of a product when the price of that product is falling because:
(a) The consumer’s real income has increased.
