Test I.D.

: 30915 Course: CA Foundation

Paper: Theory of Demand and Supply Marks: 40
Test: Unit Test II Time Allowed:45 Mins
Roll No: Model Answer

All Questions are Compulsory.

1) When the demanded goods quality is equal to supplied good’s quantity, then____
a) when you see a shortage
b) when you see a surplus
c) when you see the government is investing in the market
d) none of these

2) The shape of the demand curve is_____.

a) downward sloping
b) upward-sloping
c) vertical
d) horizontal

3) If maize has –0.30 as income elasticity of demand, then maize will be considered as _____

(a) Necessity

(b) Inferior good

(c) Superior good

(d) None

4) Contraction of supply implies ________

(a) Decrease in cost of production

(b) Decrease in price of the good concerned

(c) Decrease in price of related good

(d) Increase in price of the good concerned

5) Perishable commodities will have ______

(a) Perfectly elastic Supply curve

(b) Perfectly inelastic Supply curve

(c) Elastic Supply Curve

(d) Inelastic Supply Curve

6) Which of the following statement is correct?

(a) Supply is inversely related to its cost of production

(b) Price and quantity demand of a good have direct relation ship

(c) Taxes and subsidy has no impact on the supply of the product

(d) Seasonal changes have no impact on the supply of the commodity

7) In case of _______ goods, there is an inverse relationship between income and demand for a
product.

(a) substitute goods

(b) Complementary Goods

(c) Giffen Goods

(d) None of the above

8) Which of the following will affect the demand for non-durable goods?

(a) Disposable Income

(b) Price

(c) Demography

(d) All of the above

 9) 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

10) The price elasticity of demand at the midpoint of the straight line demand curve under point method
is _________

(a) 0

(b) 1

(c) >1

(d) <1

11) Which of the following relation is true with MU?

(a) When MU is positive, Total utility rises at a diminishing rate

(b) When marginal utility is zero, total utility is maximum.

(c) When marginal utility is negative, total utility is diminishing

(d) All of the above

12) When the supply of a product is perfectly inelastic then the curve will be

(a) Parallel to y – axis

(b) parallel to x – axis

(c) At the angle of 45o

(d) Sloping upwards

13) Which of the following is not the property of indifference curve?

(a) Slopes downwards to the right

(b) Always convex to the origin

(c) Intersects each other

(d) Will not touch either of the axis

14) Marginal average and total product of a firm in the short run will not comprise with ______

(a) When marginal product is at a maximum, average product is equal to marginal product, and total
product is rising

(b) When average product is maximum,. Average product is equal to marginal product, and total product
is rising

(c) When marginal product is negative, total product and average product are falling.

(d) When total product is increasing, average product and marginal product may be either rising or
falling

15) When price increases from Rs. 200 to Rs. 300 and supply increases from 2000 units to 5000 units,
then calculate elasticity of supply?

(a) 3

(b) 0.3

(c) 4

(d) 0.4

16) The consumer is in equilibrium when the following condition is satisfied:

(a)Mux/Muy > px/Py

(b) Mux/Muy < px/Py

(c) Mux/Muy = px/Py

(d) None of these

17) In an indifference curve analysis, the consumer attains equilibrium at a point where the marginal
rate of substitution _____________ the price ratio px/Py

(a) greater than

(b) less than

(c) equal to

(d) Not related to

18) Which of the following statement is not true?

(a) MU is the slope of TU curve

(b) MU is the rate of change of TU

(c) MU cannot be negative

(d) MU can become zero

19) An indifference curve shows __________ marginal rate of substitution between two commodities
(a) increasing

(b) decreasing

(c) constant

(d) None of the above

20) In case of Inferior goods:

(a) Income effect and substitution effect work in same direction.

(b) Income effect are substitution effect work in opposite direction

(c) Either (a) or (b)

(d) None of these 21) In case of inferior commodity, the rise in income will result ________ shift in
demand curve:

(a) Upward

(b) Downward

(c) No change

(d)Initially downward but ultimately upward

22) Demand curve of a normal commodity usually slopes _________:

(a) Downwards from left to right

(b) Upwards from left to right

(c) parallel to y -axis

(d) parallel to x – axis

23) Indifference curve slopes downwards as one product increase and another decreases because they
give.

(a) Equal satisfaction

(b) Greater Satisfaction

(c) Lesser Satisfaction

(d) None

24) Supply of land is :

(a) Elastic

(b) Perfectly Elastic

(c) Perfectly Inelastic

(d) Inelastic

25) Income elasticity of luxury goods

(a) Zero

(b) Positive and greater than one

(c) Positive and lesser than one

(d) Negative and greater than – 1

26) Elasticity of demand under perfect competition is.

(a) One

(b) Two

(c) Zero

(d) Infinite

27) Which of the following is a property of an indifference curve?

(a) It is convex to the origin.

(b) The marginal rate of substitution is constant as you move along an indifference curve.

(c) Marginal utility is constant as you move along an indifference curve.

(d) Total utility is greatest where the 45 degree line cuts the indifference curve.

28) The cross elasticity between two Complementary goods will be:

(a) Positive

(b) Negative

(c) Either (a) or (b)

(d) None of these

29) Budget line is otherwise called as

(a) Money line

(b) Preference line

(c) Income line

(d) Price line

30) When price of apple is Rs. 120 per kg. Ram buys one kg of apples at that price. Now, other things
remain the same, the price of apples falls to Rs. 90 per kg. Now Ram buys 2kg of apples. It is called as

(a) Contraction of demand

(b) Expansion of demand

(c) Market demand

(d) Demand schedule

31) The price elasticity of demand for X is 1 and the original quantity demand of X is 90 units. If the price
of X decreases from Rs. 300 to Rs. 180 per unit, calculate the new quantity demand of X.

(a) 126 units

(b) 36 units

(c) 144 units

(d) 120 units

32) If indifference curve is L shaped, it means two goods will be

(a) Perfect Complementary Goods

(b) Perfect Substitute goods

(c) Perfect inferior goods

(d) Perfect superior goods

33) Lets assume that at OY-axis we have good A and at OX-axis good B. If the price of good B increases
by Rs. 1 but the price of good A remains constant and income also remains unchanged, the budget line
will shift

(a) Right on OY axis

(b) Right on OX axis

(c) Left on OY axis

(d) Left on OX axis

34) Purushotam wanted to buy laptop by paying Rs. 60,000 but the actual price is Rs. 55,000, then
consumer surplus is

(a) 60,000

(b) 55,000

(c) 5,000

(d) 6,500

35) If the cross elasticity is only slightly below zero which of the following is correct?

(a) They are weak complements

(b) Negative and very high they are strong complements

(c) Both (a) and (b)

(d) None of these

36) The rate at which the consumer is prepared to exchange-good x and y is :

(a) Marginal rate of substitution

(b) Elasticity of Substitution

(c) Diminishing Marginal Utility

(d) None of these

37) If the price of petrol rises by 25% and demand for car falls by 40% then, cross elasticity between
petrol and car is:

(a) -1.6

(b) 1.6

(c) -2.6

(d) 2.6

38) Which of the following has the lowest price elasticity of supply?

(a) Luxury

(b) Necessities

(c) Salt

(d) Perishable goods’

39) Indifference curve is convex to the origin due to:

(a) Falling MRS

(b) Rising MRS

(c) Constant MRS

(d) None of the above

40) If the proportion of income spent on a goods decrease as income rises then income elasticity is:
(a) Greater than one

(b) Less than one

(c) One

(d) Zero

Model Answer:-