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Theory of Demand and Supply Interview Questions & Answers - Learning Mode

Theory of Demand and Supply Interview Questions & Answers - Learning Mode

As demand for an item increases, prices rise. When manufacturers respond to the price increase by producing a larger supply of that item, this increases competition and drives the price down.

Try Theory of Demand and Supply Interview Questions & Answers - Exam Mode

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Theory of Demand and Supply Interview Questions & Answers - Learning Mode
Try Theory of Demand and Supply Interview Questions & Answers - Exam Mode
Question: Which of the following is not a determinant of demand? a)Consumer's tastes and preferences b)Quality supplied of a commodity c)Income of the consumers d)Price of related goods

Answer: b)Quality supplied of a commodity
Following are the determinants of demand:
1)Price of the commodity
2)Price of related commodities
3)Level of the income of household
4)Tastes and preferences of consumers
Thus, quality supplied of a commodity is not determinant of demand. Source:
Question: Expansion and contraction of demand curve occurs due to: a)Change in the price of commodity b)Change in the price of substitute c)Change in income d)None

Answer: a)Change in the price of commodity
When as a result of decrease in price, the quantity demanded increases, in economics we say that there is an expansion of demand and when as a result of increase in price, quantity demanded decreases we say that there is a contraction of demand. Hence, we can conclude that expansion contraction of demand curve occurs due to change in price of a commodity. Source:
Question: If demand is parallel to x axis, what will be the nature of the elasticity in that case:-

a) Perfectly Elastic
b) Perfectly Inelastic
c) Slightly Elastic
d) Slightly Inelastic

Answer: a)Perfectly Elastic
When the demand is parallel to x axis i.e. demand of a commodity changes even when the price remains unchanged, the elasticity is at infinity. Hence the nature of the elasticity is perfectly elastic. Source:
Question: Demand for a commodity refers to:-

a)Desire for the commodity
b)Need for the commodity
c)Quantity demanded of that commodity
d)Quantity of the commodity demanded at a certain price during any particular period of time

Answer: d)Quantity of the commodity demanded at a certain price during any particular period of time
Demand for a commodity is always at a certain prices and for a particular period of time. Source:
Question: Law of demand is a_________
a)Quantitative statement
b)Qualitative statement
c)Both (a) and (b)

Answer: b)Qualitative statement
The law of demand is a qualitative statement and not a quantitative statement because it does not tells us the exact correlation between the quantity demanded and the price. It does not gives any of the responsiveness in any qualitative terms. Hence we can conclude that law of Demand is a qualitative statement. Source:
Question: Contraction of demand results due to_______

a)Increase in price of goods
b)Decrease in no. of products
c)Increase in Options available
d)Salary increase

Answer: a)Increase in price of goods
Other things remaining constant when due to increase in price of a commodity, its demand decreases, it is known as contraction of demand. Source:
Question: The commoditywhose demand is associated with the name of Sir Robert Giffen? a)Necessary good b)Luxury good c)Inferior good d)Ordinary good

Answer: c)Inferior good
Those goods which are considered inferior by the consumers and which occupy a substantial place in consumers budget are called 'Giffen' goods.
These goods have got their name after Sir Robert Giffen. Source:
Question: Bricks for houses is an example of which kind of demand? a)Composite b)Competitive c)Joint d)Derived

Answer: d)Derived
Derived demand is the demand for those goods which are demanded for use in production of other goods. Therefore, demand of bricks for making house is a derived demand. Source:
Question: A 10% Increase in the price of tea results is an 8% increase in the demand of coffee. Cross elasticity of demand will be: a)0.80 b)1.25 c)1.50 d)1.80

Answer: a)0.80
? = % Change in demand of X/% Change in price of Y
=0.8 Source:
Question: If the price elasticity of demand is zero, the shape of the curve will be: a)Horizontal b)Vertical c)Sloping downwards d)None of these d)

Answer: b)Vertical
Price elasticity of demand is zero when it is perfectly inelastic. this means even when there is a change in price, there is no change in demand. Source:
Question: The demand for factors production is________ a)Fundamental demand b)derived demand c)Market demand d)Joint demand

Answer: b)Derived demand
When a product is demanded consequent on the purchase of a parent product, its demand is called derived demand.
Demand for factor of production like labor etc. for a activity like building construction is a derived demand. Source:
Question: Cross elasticity of perfect substitutes is: a)Zero b)Negative c)One d)Infinity

Answer: d)Infinity
A change in the demand for one good in response to a change in the price of another good represents cross elasticity of demand of the former good for the latter good. If the two goods are perfect substitutes of each other cross elasticity is infinite. Source:
Question: If the price of any complement goods rises:

a)Demand curve shifts to left
b)Demand curve shifts to right
c)Demand curve moves downwards
d)Demand curve moves upward

Answer: a)Demand curve shifts to left
If the price of the complement good rises its demand decreases. Since the demand decreases due to factors other than price so the demand curve shifts towards the left. Source:
Question: The price of hot dogs increased by 22% and the quantity demanded falls by 25% this indicates that demand for hot dogs is:
c)Unitary elastic
d)Perfectly elastic

Answer: a)Elastic
Demand for a good is elastic when the percentage change in quantity demanded is more than the percentage change in price. Price of hot dogs increase by 22% and demand falls by 25% hence, demand for hot dogs is elastic. Source:
Question: Which factor generally keeps the price-elasticity of demand for a good low:-

a)Variety of uses for that good
b)Its low price
c)Close substitutes for that good
d)High proportion of the consumer's income

Answer: b)Its low price
Lower the price of the good, the lower is its response to change in prices i.e. lower is the price elasticity. Demand of a commodity having very low price will not be effected with price fluctuations. The above explanation is due to the fact that a low priced commodity has a small place in consumer's budget. Source:
Question: Which statement is true about the law of demand: a)Income rises, demand rises b)Price rises, demand rises c)Price falls, demand falls d)Price falls, demand rises

Answer: d)Price falls, demand rises
Other things being equal,the demand of a commodity is inversely related to its price. It implies that rise in price of a commodity brings about fall in demand and vice versa. Source:
Question: If income of a person increases by 10% and his demand for goods increases by 30%, income elasticity will be_______ a)Equal to one b)Less than one c)More than one d)None of these

Answer: c)More than one
Income elasticity is calculated as follows:
% change in demand/% change in income. Source:
Question: What is income elasticity of demand, when income changes by 20% and demand changes by 40%

Answer: b)2
Income elasticity of demand is calculate as follows:
e= % Change in demand/% Change in income
So elasticity of demand is 2. Source:
Question: A fall in price of normal goods leads to: a)Shift in demand curve b)Fall in demand c)A rise in consumer's real income d)A fall in consumer's real income

Answer: c)A rise in consumer's real income
When the price of normal good falls, consumer's real income increases and this induces him to buy more of that commodity. this is known as the income effect. Source:
Question: In case of an inferior good, the income elasticity of demand is: a)Positive b)Zero c)Negative d)Infinite

Answer: c)Negative
In case of inferior goods, as the income increases the demand for inferior goods decreases and vice-versa. Hence, inferior goods have a negative income elasticity. Source:

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