UNIT 2: SUPPLY AND DEMAND – MCQ 2025
Q.1: Which of the following will cause the demand for a normal good to increase?
A. A decrease in consumers’ income
B. A decrease in the price of a complementary good
C. A decrease in the price of a substitute good
D. A decrease in the price of the good
E. A decrease in the number of consumers
ANSWER:
Q.2: Which of the following best describes the law of demand?
A. When income increases, the demand for goods increases.
B. When the price of a good decreases, the demand for the good increases.
C. When the price of a good decreases, the quantity demanded of the good decreases.
D. When the price of a good increases, the quantity demanded of the good decreases.
E. When the demand for a good increases, consumers’ willingness and ability to buy
the good increases.
ANSWER:
Q.3: Assume that good X is a normal good. If the price of good X increases, what will
happen?
A. The substitution and income effects will both lead to more of good X being
purchased.
B. The substitution and income effects will both lead to less of good X being purchased.
C. The substitution effect will lead to more of good X being purchased, while the
income effect will lead to less of good X being purchased.
D. The substitution effect will lead to less of good X being purchased, while the income
effect will lead to more of good X being purchased.
E. There will be no income effect because only the price of good X has changed.
ANSWER:
Q.4: Which of the following changes will lead to an increase in the supply of good X?
A. An increase in the price of good X
B. An increase in the wages of labor used to produce good X
C. A decrease in the price of energy, a key input to the production of good X
D. An increase in the demand for good X
E. A decrease in the number of sellers of good X
ANSWER:
Q.5: Which of the following statements about the market supply curve is true?
A. An increase in input prices will shift the market supply curve to the right.
B. At each price, a horizontal summation of the quantity supplied by each firm will yield
the market supply curve.
C. At each quantity supplied, a vertical summation of the price set by each firm will yield
the market supply curve.
D. A decrease in the price will shift the market supply curve to the left.
E. The law of supply states that the market supply curve may shift right, shift left, or
remain the same as the price increases.
ANSWER:
Q.6: Which of the following statements relating to supply is true?
A. An increase in an input price will lead to an increase in supply.
B. An increase in the price of a good will lead to an increase in the supply of the good.
C. A decrease in consumers’ income will lead to a decrease in the supply of the good.
D. A decrease in the price of a good will lead to a decrease in the quantity supplied of
the good.
E. A decrease in the price of a substitute good in production will lead to a decrease in
the supply of another substitute good.
ANSWER:
Q.7: Which of the following statements about the price elasticity of demand is true?
A. When demand is price inelastic, total revenue will decrease as price increases.
B. When demand is price elastic, an increase in price will increase total revenue.
C. Demand tends to be more elastic in the short run compared to the long run.
D. As more close substitutes become available, demand tends to be more price elastic.
E. As a good becomes viewed as a necessity, demand becomes more price elastic.
ANSWER:
Q.8: Assume that the price of orange juice increases by 40 percent following a crop
failure. If the quantity demanded falls by 10 percent, which of the following is true?
A. The demand for orange juice is elastic.
B. The price of grapefruit juice, a substitute good, will fall.
C. The absolute value of the price elasticity of demand for orange juice is 4.
D. The absolute value of the price elasticity of demand for orange juice is 0.25.
E. The absolute value of the price elasticity of demand for orange juice is 10.
ANSWER:
Q. 9: The price elasticity of demand for a product is 0.5. If the price of the product
increases by 20 percent, which of the following will occur?
A. The quantity demanded of the good will increase by 10%.
B. The quantity demanded of the good will increase by 20%.
C. The quantity demanded of the good will increase by 40%.
D. The quantity demanded of the good will decrease by 10%.
E. The quantity demanded of the good will decrease by 40%.
ANSWER
Q.10: The cross-price elasticity of demand between goods J and K is − 3 . A 20 percent
decrease in the price of good K will result in a
A. 3 percent decrease in the quantity demanded of good K
B. 15 percent decrease in the quantity demanded of good K
C. 6 percent increase in the quantity demanded of good J
D. 12 percent increase in the quantity demanded of good J
E. 60 percent increase in the quantity demanded of good J
ANSWER:
Q.11: Which of the following statements relating to income elasticity is true?
A. A positive value for the income elasticity coefficient indicates an inferior good.
B. If good X and good Y have negative income elasticities, then both goods are
substitutes.
C. With an income elasticity coefficient of 0.6, the demand is inelastic and the good is
an inferior good.
D. With an income elasticity coefficient of 5, a 10 percent increase in income will lead to
a 50 percent increase in the quantity demanded of the good.
E. With an income elasticity coefficient of −1.2, a 10 percent increase in income will
lead to a 12 percent decrease in the price of the good.
ANSWER:
Q.12: Assume the income elasticity of demand for good Z equals −5.0. Which of the
following is true?
A. Good Z is a normal good.
B. Good Z must have an inelastic demand.
C. An increase in income will lead to a decrease in demand.
D. An increase in income will lead to an increase in demand.
E. The income effect of a price increase will be a decrease in quantity demanded at
every price.
ANSWER: