# Free The Demand Curve 02 Practice Test - 11th Grade - Commerce

If we expect a rise in price in near future of a commodity, then demand will increase. State true or false.

A.

True

B.

False

#### SOLUTION

Solution : A

If an increase in price is expected, consumers will want to stock more of a commodity. Hence, the demand will increase.

Average income increases from INR 20,000 p.m. to INR 22,000 p.m. Quantity demanded per month increases from 5000 to 6000 units. Which of the following is correct?

A.

Demand is price inelastic

B.

The good is inferior

C.

Income elasticity is -2

D.

The product has a positive income elasticity of demand

#### SOLUTION

Solution : D

The percentage change in demand is +20%; the percentage change in income is +10%. This means the product is normal because demand rises with more income and has an income elasticity of +2.

If the demand is price inelastic:

A.

An increase in price must raise profits

B.

An increase in price decreases revenue

C.

An increase in price increases revenue

D.

A decrease in price reduces sales

#### SOLUTION

Solution : C

This means that the percentage change in quantity demanded is less than the percentage change in price; this means a price increase will increase revenue.

For an inferior good with a downward sloping demand curve:

A.

The price elasticity of demand is negative; the income elasticity of demand is negative.

B.

The price elasticity of demand is positive; the income elasticity of demand is negative.

C.

The price elasticity of demand is negative; the income elasticity of demand is positive.

D.

The price elasticity of demand is positive; the income elasticity of demand is positive.

#### SOLUTION

Solution : A

A. For an inferior good demand falls as income increases. The quantity demanded falls as price increases; this means the income elasticity and the price elasticity will both be negative.

For a normal good with a downward sloping demand curve:

A.

The price elasticity of demand is negative; the income elasticity of demand is negative.

B.

The price elasticity of demand is positive; the income elasticity of demand is negative.

C.

The price elasticity of demand is negative; the income elasticity of demand is positive.

D.

The price elasticity of demand is positive; the income elasticity of demand is positive.

#### SOLUTION

Solution : C

The price elasticity of demand is negative; the income elasticity of demand is positive.

An individual demand curve slopes downward to the right because of the:

A.

Working of the law of diminishing marginal utility

B.

Substitution effect of decrease in price

C.

Income effect of fall in price

D.

All of the above

#### SOLUTION

Solution : D

All three are reasons why an individual demand curves slopes downward to the right.

Which of the following is not a determinant of a consumer's demand for a commodity?

A.

Income

B.

Population

C.

Prices of related goods

D.

Tastes

#### SOLUTION

Solution : B

Population is not a determinant of a consumer's demand for a commodity.

If consumer income declines, then the demand for

A.

normal goods will increase.

B.

inferior goods will increase.

C.

substitute goods will increase.

D.

complementary goods will increase.

#### SOLUTION

Solution : B

If consumer income declines, then the demand for inferior goods increases.

Which of the following will not decrease the demand for a normal good?

A.

The price of a substitute decreases

B.

Increase in income

C.

The price of a complementary good increases

D.

price of the good decreases

#### SOLUTION

Solution : B

With an increase in income, the demand for normal goods increase.

Which of the following would increase aggregate demand?

A.

Increased saving

B.

Increasing import spending

C.

Increased taxation revenue

D.

Increased investment

#### SOLUTION

Solution : D

Aggregate demand increases with increase in investment.