# Free The Demand Curve 03 Practice Test - 11th Grade - Commerce

When the price of a commodity falls, its demand increases. State true or false.

A.

True

B.

False

#### SOLUTION

Solution : B

As the price of a good falls, its quantity demanded increases. It corresponds to movement along the demand curve.  A change in demand refers to a shift of the demand curve itself. Hence, the two are separate.

The price decreases from INR 2,000 to INR 1,800. Quantity demanded per year increases from 5000 to 6000 units. Which of the following is correct?

A.

The price elasticity of demand is -2

B.

The good is inferior

C.

Income elasticity is + 0.5

D.

Income elasticity is + 2

#### SOLUTION

Solution : A

A. The percentage change in demand is +20%; the percentage change in price is -10% so the price elasticity of demand is -2.

Which among the following statement is INCORRECT?

A.

On a linear demand curve, all the five forms of elasticity can be depicted’

B.

If two demand curves are linear and intersecting each other, then elasticity would be same on different demand curves at the point of intersection.

C.

If two demand curves are linear, and parallel to each other then at a particular price the coefficient of elasticity would be different on different demand curves.

D.

The price elasticity of demand is expressed in terms of relative not absolute, changes in price and quantity demanded

#### SOLUTION

Solution : B

If the two straight line demand curves in­tersect, then, of them, the steeper line would be less elas­tic and the flatter line would be more elastic.

Which of the following pairs represent substitute goods?

A.

Car and petrol

B.

Juice and cold drink

C.

Bread and butter

D.

All of these

#### SOLUTION

Solution : B

Juice and cold drink are substituted goods, as one could be substituted for the other.

In case of Giffen's Paradox, the slope of demand curve is:

A.

negative

B.

positive

C.

paralled to X-axis

D.

paralled to Y-axis

#### SOLUTION

Solution : B

In case of Giffen's Paradox, the slope of demand curve is positive.

A fall in own price of the commodity leads to:

A.

increase in real income of the consumer

B.

decrease in real income of the consumer

C.

increase in purchasing power of the consumer

D.

Both (a) and (c)

#### SOLUTION

Solution : D

A fall in own price of the commodity leads to increase in real income of the consumer and a consquent increase in purchasing power of the consumer.

Substitution effect takes place when price of the commodity becomes:

A.

relatively cheap

B.

relatively dear

C.

stable

D.

both (a) and (b)

#### SOLUTION

Solution : D

Substitution effect takes place when price of the commodity becomes either relatively cheap or relatively dear.

When the slope of demand curve = infinity, the price elasticity of demand = 0.

A.

True

B.

False

#### SOLUTION

Solution : A

True.

eD=1slope×PQ=1×PQ=0

If price elasticity of demand is zero, it means expenditure on the commodity does not change with change in price of the commodity.

A.

True

B.

False

#### SOLUTION

Solution : B

False. When Ed = 0, demand remains constant, no matter what the price is. Implying that total expenditure may increase/decrease, but not the quantity demanded.

A vertical straight line demand curve shows that demand rises to infinity even when price remains constant.

A.

True

B.

False

#### SOLUTION

Solution : B

False. A vertical straight line demand curve parallel to Y-axis shows no change in the demand irrespective of change in price. So that, Ed = 0.