Theory of Demand and Supply CA Foundation MCQ are covered in this Article. Theory of Demand and Supply CA Foundation MCQ Test contains 64 questions. Answers to MCQ on Theory of Demand and Supply CA Foundation Economics are available at the end of the last question. These MCQs have been made for CA Foundation students to help check the concept you have learnt from detailed classroom sessions and application of your knowledge. For more MCQ’s, subscribe to our email list.
Theory of Demand and Supply CA Foundation MCQ
1) Demand is ineffective if it is
a) Only a desire with no ability to pay
b) a desire with means to purchase
c) supported by ability and willingness to pay
d) none of the above
2) Demand is always expressed as
a) A desire
b) A single isolated purchase
c) A quantity required at a given price
d) An ability to pay
3) Ceteris Paribus means
a) The state in which
b) Other things being equal
c) Of all the things
d) Change is constant
4) Which of the following is true about demand?
a) It can be expressed irrespective of the price
b) It must be expressed as a quantity demanded in a given period of time
c) It can be considered as an isolated instance of purchase
d) It is about a desire to buy without ability or willingness to pay
5) As a result of income and substitution effects,
a) Demand of a commodity is directly proportional to its price
b) Demand of a commodity is constant at any given price
c) Demand of a commodity is inversely proportional to its price
d) None of the above
6) Other things being equal, in case of complementary goods,
a) Fall in price of one will lead to fall in demand of the other
b) Fall in price of one will lead to rise in demand of the other
c) There is no effect of change in price on demand of either goods
d) The prices don’t change
7) Competing goods are defined as
a) The goods that cab be consumed together or simultaneously
b) The goods that can be used with ease in place of one another
c) The price in fall of one leads to increase in demand of another
d) None of the above
8) When the price of full cream milk falls, it leads to an fall in the demand of double toned milk. In this case, the two types of milk are known as
a) Complementary goods
b) Giffen goods
c) Competing goods
d) Inferior goods
9) When the quantity demanded of any commodity decreases even when there is an increase in the income, it is known as
a) Ordinary good
b) Competing good
c) Inferior good
d) Perfect good
10) The propensity to consume is better when
a) The distribution of income is more among the rich people
b) A country has a few very rich people and majority are poor people
c) A country is full of rich people
d) The distribution of income is more equal across the country
Theory of Demand and Supply CA Foundation MCQ
11) The demand for a commodity is
a) Dependent on the income of the household only
b) Dependent on income and taste preferences only
c) Independent of any factor
d) Is dependent on combination of several factors
12) An important assumption in the law of demand is
a) Status quo
b) Ceteris Paribus
c) Laissez faire
d) None of the above
13) A Market Demand Schedule
a) Attempts to isolate the influence exerted by the price of the good on quantity sold
b) Includes the influence of other factors in change of prices and quantity
c) Assumes that all other factors are unchanged
d) Both a and c
14. Which of the following is a likely incorrect explanation for downward sloping demand curve?
a) A consumer buys additional units at a lesser price to maximize his satisfaction
b) Consumers who could not afford earlier still avoid buying despite lower prices
c) Fall in prices leads to use for various purposes of the commodity
d) Increase in income leads to buy more of the commodity
15. Veblen effect arises when consumers
a) cannot relate to the utility and price of a commodity
b) realise that the utility is too low for a price which appears too high
c) measure the utility of a commodity by its price
d) consider the utility irrespective of the price
16. Conspicuous goods are
a) Bought in huge quantities at both low and high process
b) Not bought at all
c) Bought in low quantities at low prices and in high quantities at high prices
d) Bought in high quantities at low price and in low quantities at high prices
17. Goods which exhibit direct price demand relationship are known as
a) Informal goods
b) Giffen goods
c) Conspicuous goods
d) Complementary goods
18. With decline in the purchasing power, inferior goods occupy substantial place in consumer’s budget. Such goods are known as
a) Complementary goods
b) Normal Goods
c) Giffen Goods
d) Competing goods
19. The average rainfall in the country has been below expectations and had as affected the growth of crops. As a result, people are expecting a rise in the prices of foodgrains. Hence, they are more likely to
a) Buy in large quantities in the present
b) Buy in large quantities after the prices have gone up
c) Buy a little in present a little more after the prices rise
d) Not buy at all in either case
20. The law of demand tends to fail when
a) People make rational and knowledgeable decisions based on market conditions
b) People make impulsive decisions without any second thought about prices and utility
c) When there is no change in the income of the household
d) None of the above
21. An upward movement on the demand curve indicates
a) Reduction in prices and expansion of demand
b) Increase in prices and expansion of demand
c) Increase in prices and contraction of demand
d) Reduction in prices and contraction of demand
22. To study the expansion or contraction of demand on a demand curve,
a) Change in income of household must be considered
b) Only the change in the price must be considered
c) Other factors such as income, tastes, prices of related goods etc. remain constant
d) Both b and c
23) In terms of a demand curve, a change in the household income is most likely to result in
a) Contraction of demand on the same demand curve
b) A shift in the demand curve
c) Expansion of demand on the same demand curve
d) None of the above
24) A rightward shift in the demand curve can not be caused by
a) Rise in the price of the substitute
b) Fall in the price of a complementary good
c) Fall in the income
d) Increase in population
25) A downward shift in the demand curve can be caused by
a) No change in taste against the commodity under consideration
b) Fall in the price of the substitute
c) Fall in the price of the complementary good
d) Decrease in the population
Theory of Demand and Supply CA Foundation MCQ
26) Elasticity of Demand deals with
a) Change in demand of a commodity
b) Change in quantity demanded of a commodity
c) No change in any of the variables on which demand depends
d) All of the above
27) Unless otherwise mentioned, elasticity of demand refers to
a) Income elasticity
b) Cross elasticity
c) Elasticity of substitution
d) Price elasticity
28) The Total Outlay Method determines
a) The exact co-efficient of elasticity
b) Whether the good is elastic or not
c) Both a & b
d) None of the above
29) Pizza Hut decides to raise the prices of all its Pizza varieties. As a result, people start buying more of Domino’s pizzas as they have not raised their prices. Then we can surely say that
a) Pizzas from Pizza Hut have a highly elastic demand
b) Pizzas, in either case, are in high demand
c) Pizzas from Pizza Hut have inelastic demand
d) None of the above
30. Which of the following statement is incorrect?
a) With increase in prices of mobile phone services, the use of mobile phone is restricted indicating that price elasticity of mobile services is dependent on number of uses
b) An Apple iphone (luxury) is price inelastic as compared to an Apple fruit (a necessity) in terms of the nature of the need satisfied
c) Neither A nor B
d) Both A and B
31) The cross elasticity of demand between two goods is
a) Infinite if the two goods are totally unrelated
b) Zero if the two goods are perfect substitutes
c) Infinite if the two goods are perfect substitutes
d) Determined by change in demand of one in response to change in demand for another good
Theory of Demand and Supply CA Foundation MCQ
32) When marginal utility is zero,
a) Average utility is maximum
b) Total utility is equal to average utility
c) Total utility is maximum
d) Total utility is same as it was when marginal utility was maximum
33. The total expenditure on a good is likely to increase
a) If the demand for the good is inelastic and its price increases
b) If the demand for the good is inelastic and its price decreases
c) If the demand for the good and its price remain the same
d) If the demand for the good is elastic and price remains the same
34. If KFC raises its prices by 10% and the quantity demanded of McDonald’s burgers increases by 20%, then cross-price elasticity of demand between KFC and McDonald’s is
a) -1
b) -2
c) 1
d) 2
35. Mother Dairy increases the price of its full cream milk from Rs. 18 to Rs. 23 per litre and the quantity demanded falls from 1250 litres to 800 litres. The approximate price elasticity of demand for the milk is
a) 0.85
b) 1.8
c) 3.2
d) 2.4
36. Assume that the demand for mobile phone services of Airtel is elastic. If Airtel decides to raise the prices of its services, it can expect a relative
a) Increase in the number of customers
b) Increase in the quantity of phone calls and messages by customers
c) Decrease in the number of customers
d) Decrease in the quantity if phone calls and messages by customers
Note: This is because elasticity of demand determines the change in quantity demanded and not the demand itself.
37. When the demand curve is upward sloping to the right, it represents
a) Normal goods
b) Complementary goods
c) Giffen goods
d) Substitute goods
38. Leather accessories like belts, wallets and bags are known as
a) Producers goods
b) Inferior goods
c) Durable goods
d) Non-Durable Goods
39. Café Coffee Day plans to increase the number of outlets from 1000 to 3000 in next two years. It also expects that there would be a 20% to 30% annual growth in the demand for coffee. This is expected to
a) Increase the amount of coffee consumed only
b) Decrease the price and increase the amount of coffee consumed
c) Increase the price of coffee only
d) Increase the price and the amount of coffee consumed
40. If Starbucks enters Indian markets in next couple of years and sells coffee like CCD, then it will
a) Not affect the demand for CCD’s coffee
b) Act as a complementary coffee to CCD’s coffee
c) Act as a substitute coffee to CCD’s coffee
d) Any of these
Theory of Demand and Supply CA Foundation MCQ
41. In Economics, when demand for a commodity decreases with a rise in its price, it is known as
a) Contraction of demand
b) Expansion of demand
c) No change in demand
d) None of the above
42. If the price of SUVs increases by 20% and supply increases by 30% then the elasticity of supply is
a) 0.66
b) 0.5
c) 3
d) 6
43. Which of the following statements is incorrect?
a) Elasticity of supply is responsiveness of the quantity supplied of a good without change in its price
b) Elasticity of supply is Zero means perfectly elastic supply
c) The aim of consumer in allocating his income is to maximize his total utility
d) Salt is said to have a perfectly elastic demand
44) The supply curve for non-durable goods is
a) Elastic
b) Inelastic
c) Perfectly elastic
d) Perfectly inelastic
45) Which of the following statements is correct?
a) The supply curve shifts to the right because of increased price of factors of production
b) If the demand is more than the supply, then the pressure on the price will be upward
c) Supply is a stock concept
d) When the supply curve moves to the left it means constant supply
46) When the supply increases, the supply curve
a) remains unchanged
b) Moves to the left
c) Moves to the right
d) Can move either way
47) Elasticity of supply is obtained by dividing the percentage change in quantity demanded by
a) Percentage change in the income
b) Percentage change in the consumption
c) Percentage change in the price
d) Percentage change in the factors of production
48) Supply curve of infinite elasticity is represented by
a) A vertical line
b) A horizontal line
c) A right side downward sloping line
d) A right side upward sloping line
49) If the relative change in quantity supplied is exactly equal to the relative change in the price, the co-efficient of elasticity of supply is
a) Less than one
b) Great than one
c) One
d) Infinite
50) Relatively greater elastic supply reflects
a) Relative change in the quantity supplied is less than the relative change in price
b) Relative change in the quantity supplied is greater than the relative change in the price
c) There is no change in the quantity supplied for any change in the price
d) There is large change in the quantity supplied for a small increase in price
51) Which of the following is a false statement?
a) When the total utility rises the marginal utility diminishes
b) When the total utility is maximum then the marginal utility is zero
c) When the total utility is diminishing then the marginal utility is rising
d) When the total utility is diminishing then the marginal utility is negative
52) Which of the following is true about the indifference curves
a) They slope upward toward the right
b) They are always concave to the origin
c) They can never intersect each other
d) They will touch at least one of the two axis
53) Any combination of goods lying within the budget line indicates that
a) It is beyond the reach of the consumer
b) The consumer had achieve equilibrium
c) The consumer is not spending as much as his budget line approves of
d) None of the above
54) We can say that the consumer is in equilibrium
a) Price line is tangent to the indifference curve
b) Price line intersects the indifference curve
c) Price line is to the right of the indifference curve
d) Price line is to the left of the indifference curve
55) Which of the following is an incorrect statement?
a) Consumer surplus is the difference between what a consumer is willing to pay and what he actually pays
b) Utility is an absolute concept
c) Marginal rate of substitution is the rate at which the consumer is prepared to exchange goods X & Y.
d) Indifference curve slopes downwards towards the right
56) An upward movement on the supply curve represents
a) Change in the factors of production
b) Increase in the price and the quantity supplied
c) Decrease in the price and increase in the quantity supplied
d) Increase in the price and decrease in the quantity supplied
57) When one of the factors affecting the supply is changed,
a) There is a movement on the supply curve
b) The supply curve shifts
c) There is no change in the supply and hence no effect on the supply curve
d) None of the above
58) During the festival season, Haldirams increases the cost of sweet items from 400 rupees per kg to 480 rupees per kg and also increases the supply from 500 kgs to 800 kgs. The elasticity of supply is
a) 2.5
b) -2.5
c) 1.5
d) 3
59) The supply function is given as Q = -150 + 25 P. The elasticity of supply using point elasticity method at P = 30 is
a) 1.75
b) 1.5
c) 1.25
d) 0.95
60) Equilibrium price is also called as
a) Optimum Price
b) Market Clearing Price
c) Consumer Surplus
d) Maximum Retail Price
61) On 15th August, Big Bazaar announced a special offer on canned juices. It reduces their price from 120 rupees per litre to 90 rupees per litre. As a result, the quantity demanded increases from 2000 litres to 3000 litres. The price elasticity of demand for canned juices is
a) 1.0
b) 1.4
c) 1.8
d) 2.0
62) As a result of increase in aviation fuel prices by 3%, the number of passengers travelling by air decreased by 7%. The price elasticity of demand for air travel is
a) 2.33
b) 0.42
c) 1.5
d) 2.0
63) The numerical measures of elasticity are: Zero, Greater than One, Greater than one but less than infinity, Infinity. Identify the corresponding correct order of terminology from the options below:
a) Inelastic, Unit Elastic, Elastic, Perfectly Elastic
b) Perfectly Inelastic, Inelastic, Elastic, Perfectly Elastic
c) Perfectly Inelastic, Elastic, Inelastic Perfectly Elastic
d) Inelastic, Unit Elastic, Inelastic Perfectly Elastic
64. When income elasticity is greater than Zero and less than one, it is more likely to represent
a) A luxurious commodity
b) An inferior commodity
c) A normal good that fulfils a necessity
d) A giffen good
Theory of Demand and Supply CA Foundation MCQ – Answers
1. a) Only a desire with no ability to pay
2. c) A quantity required at a given price
3. b) Other things being equal
4. b) It must be expressed as a quantity demanded in a given period of time
5. c) Demand of a commodity is inversely proportional to its price
6. b) Fall in price of one will lead to rise in demand of the other
7. b) The goods that can be used with ease in place of one another
8. c) Competing goods
9. c) Inferior good
10. d) The distribution of income is more equal across the country
11. d) Is dependent on combination of several factors
12. b) Ceteris Paribus
13. d) Both a and c
14. b) Consumers who could not afford earlier still avoid buying despite lower prices
15. c) measure the utility of a commodity by its price
16. c) Bought in low quantities at low prices and in high quantities at high prices
17. b) Giffen goods
18. c) Giffen goods
19. a) Buy in large quantities in the present
20. a) People make rational and knowledgeable decisions based on market conditions
21. c) Increase in prices and contraction of demand
22. d) Both b and c
23. b) A shift in the demand curve
24. c) Fall in the income
25. b) Fall in the price of the substitute
26. b) Change in quantity demanded of a commodity
27. d) Price elasticity
28. b) Whether the good is elastic or not
29. c) Pizzas from Pizza Hut have a highly elastic demand
30. d) Both A and B
31. c) Infinite if the two goods are perfect substitutes
32. c) Total utility is maximum
33. a) If the demand for the good is inelastic and its price increases
34. d) 2
35. b) 1.8
36. d) Decrease in the quantity if phone calls and messages by customers
37. c) Giffen goods
38. c) Durable goods
39. d) Increase the price and the amount of coffee consumed
40. b) Act as a complementary coffee to CCD’s coffee
41. a) Contraction of demand
42. b) 1.5
43. c) The aim of consumer in allocating his income is to maximize his total utility
44. d) Perfectly inelastic
45. b) If the demand is more than the supply, then the pressure on the price will be upward
46. c) Moves to the right
47. c) Percentage change in the price
48. b) A horizontal line
49. c) One
50. b) Relative change in the quantity supplied is greater than the relative change in the price
51. c) When the total utility is diminishing then the marginal utility is rising
52. c) They can never intersect each other
53. c) The consumer is not spending as much as his budget line approves of
54. a) Price line is tangent to the indifference curve
55. b) Utility is an absolute concept
56. b) Increase in the price and the quantity supplied
57. b) The supply curve shifts
58. a) 2.5
59. c) 1.25
60. b) Market Clearing Price
61. b) 1.4
62. a) 2.33
63. b) Perfectly Inelastic, Inelastic, Elastic, Perfectly Elastic
64. c) A normal good that fulfils a necessity