Microeconomics: Demand & Supply

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Microeconomics: Demand & Supply — solved practice questions

8 Class 12 Economics questions with step-by-step solutions. Attempt each, then reveal the answer.

1. Q1easy

   The Law of Demand states that, other things remaining constant, when the price of a good rises, its quantity demanded:

   • ARises
   • BFalls
   • CRemains unchanged
   • DFirst rises then falls
   Show answer & solution

   Correct answer: (B) Falls

   The Law of Demand describes an inverse relationship between price and quantity demanded, ceteris paribus. A rise in price leads to a fall in quantity demanded and vice versa.

2. Q2medium

   The demand curve of a normal good slopes downward from left to right mainly because of:

   • AOnly the income effect
   • BOnly the substitution effect
   • CBoth income effect and substitution effect
   • DThe Giffen paradox
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   Correct answer: (C) Both income effect and substitution effect

   The negative slope is explained by the income effect and the substitution effect, together with the operation of the law of diminishing marginal utility. As price falls, real income rises (income effect) and the good becomes cheaper relative to substitutes (substitution effect).

3. Q3medium

   Two goods X and Y are substitutes. If the price of Y rises, the demand curve for X will:

   • AShift to the right
   • BShift to the left
   • CRemain unchanged
   • DBecome vertical
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   Correct answer: (A) Shift to the right

   For substitute goods, a rise in the price of one good increases the demand for the other. So a rise in the price of Y shifts the demand curve for X rightward (increase in demand).

4. Q4hard

   The price of a commodity falls from Rs 10 to Rs 8 and its quantity demanded rises from 100 to 120 units. The price elasticity of demand (by percentage method) is:

   • A0.5
   • B2
   • C1
   • D1.5
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   Correct answer: (C) 1

   Percentage change in quantity = 20/100 = 20%. Percentage change in price = -2/10 = -20%. Elasticity = 20% / 20% = 1 (unitary elastic, taking the numerical value).

5. Q5easy

   When the demand for a good does not change at all in response to a change in its price, the demand is said to be:

   • APerfectly elastic
   • BUnitary elastic
   • CRelatively elastic
   • DPerfectly inelastic
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   Correct answer: (D) Perfectly inelastic

   Perfectly inelastic demand (elasticity = 0) means quantity demanded stays the same regardless of price change. Its demand curve is a vertical straight line parallel to the Y-axis.

6. Q6medium

   A movement along a given demand curve (change in quantity demanded) is caused by a change in:

   • AIncome of the consumer
   • BPrice of the good itself
   • CTastes and preferences
   • DPrices of related goods
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   Correct answer: (B) Price of the good itself

   A change in quantity demanded (extension or contraction) is caused only by a change in the own price of the good, other factors held constant. A change in other factors causes a shift of the curve.

7. Q7medium

   For an inferior good, when the income of a consumer increases, the demand for the good:

   • AIncreases
   • BDecreases
   • CRemains constant
   • DBecomes perfectly elastic
   Show answer & solution

   Correct answer: (B) Decreases

   An inferior good has a negative income effect. As income rises, consumers switch to superior substitutes, so demand for the inferior good falls and its demand curve shifts leftward.

8. Q8easy

   The Law of Supply states that, other things being equal, there is a __________ relationship between price and quantity supplied.

   • ADirect (positive)
   • BInverse (negative)
   • CZero
   • DConstant
   Show answer & solution

   Correct answer: (A) Direct (positive)

   The Law of Supply describes a direct (positive) relationship between price and quantity supplied. As price rises, producers supply more, so the supply curve slopes upward.

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