Demand, Supply, Elasticity and Market Forms

Attempt the quiz above first, then review every question with its correct answer and a short explanation below.

1. Q1.According to the law of demand, when the price of a good rises (other things unchanged), the quantity demanded:

   • A.rises
   • B.stays constant
   • C.becomes zero always
   • D.falls✓ Correct Answer

   Explanation: Price and quantity demanded move in opposite directions, so the demand curve slopes downward.

2. Q2.According to the law of supply, when the price of a good rises, the quantity supplied:

   • A.falls
   • B.stays constant
   • C.rises✓ Correct Answer
   • D.becomes zero

   Explanation: Higher prices encourage producers to supply more.

3. Q3.A market with a single seller of a product with no close substitutes is called:

   • A.oligopoly
   • B.perfect competition
   • C.duopoly
   • D.monopoly✓ Correct Answer

   Explanation: In a monopoly one firm controls the supply of the good.

4. Q4.A market with only a few large sellers is called:

   • A.oligopoly✓ Correct Answer
   • B.monopoly
   • C.perfect competition
   • D.monopsony

   Explanation: Sellers in an oligopoly are few and interdependent, as in the telecom sector.

5. Q5.Which feature belongs to perfect competition?

   • A.many buyers and sellers selling identical products✓ Correct Answer
   • B.a single seller
   • C.a few powerful sellers
   • D.a government-fixed price

   Explanation: In perfect competition no single firm can influence the market price.

6. Q6.The point where the demand curve and the supply curve intersect gives the:

   • A.maximum price
   • B.equilibrium price✓ Correct Answer
   • C.minimum wage
   • D.black-market price

   Explanation: At equilibrium, quantity demanded equals quantity supplied.

7. Q7.A Giffen good is one for which demand:

   • A.falls when income rises
   • B.rises when its price rises✓ Correct Answer
   • C.is perfectly elastic
   • D.never changes

   Explanation: A Giffen good is a strongly inferior staple whose demand rises with price, violating the law of demand.

8. Q8.If the price elasticity of demand for a good is greater than 1, demand is said to be:

   • A.inelastic
   • B.elastic✓ Correct Answer
   • C.perfectly inelastic
   • D.unitary

   Explanation: Demand is elastic when quantity demanded changes proportionately more than the price.

9. Q9.The demand for a necessity such as salt is generally:

   • A.highly elastic
   • B.perfectly elastic
   • C.negative
   • D.inelastic✓ Correct Answer

   Explanation: People keep buying salt even if its price rises, so demand responds little to price.

10. Q10.Which of the following is a pair of complementary goods?

    • A.tea and coffee
    • B.butter and margarine
    • C.car and petrol✓ Correct Answer
    • D.rice and wheat

    Explanation: Complements are used together, so a rise in the price of one lowers demand for the other.

11. Q11.Which of the following is a pair of substitute goods?

    • A.tea and coffee✓ Correct Answer
    • B.car and petrol
    • C.pen and ink
    • D.bread and butter

    Explanation: Substitutes can replace each other, so a rise in the price of one raises demand for the other.

12. Q12.The main feature of monopolistic competition is:

    • A.a single seller
    • B.many sellers offering differentiated products✓ Correct Answer
    • C.identical products
    • D.no advertising

    Explanation: Toothpaste, soap and clothing brands are examples of product differentiation.

13. Q13.An inferior good is one for which demand:

    • A.falls as consumer income rises✓ Correct Answer
    • B.rises as consumer income rises
    • C.is unaffected by price
    • D.rises only in winter

    Explanation: As incomes rise, people shift away from inferior goods to better ones.

14. Q14.Consumer surplus is the difference between:

    • A.price and cost of production
    • B.income and expenditure
    • C.what a consumer is willing to pay and what is actually paid✓ Correct Answer
    • D.demand and supply

    Explanation: The gain to buyers from paying less than the maximum they would pay is consumer surplus.

15. Q15.The law of diminishing marginal utility states that as a person consumes more units of a good, the additional satisfaction from each extra unit:

    • A.increases
    • B.remains constant
    • C.doubles
    • D.decreases✓ Correct Answer

    Explanation: The first glass of water satisfies more than the fifth.

16. Q16.For a normal good, a rise in consumers' incomes causes the demand curve to:

    • A.shift to the left
    • B.shift to the right✓ Correct Answer
    • C.become vertical
    • D.remain unchanged

    Explanation: Higher income raises demand at every price, shifting the whole curve rightwards.

17. Q17.Goods whose demand rises as their price rises because they confer status are called:

    • A.Veblen goods✓ Correct Answer
    • B.Giffen goods
    • C.inferior goods
    • D.complementary goods

    Explanation: Veblen goods are luxury items bought for prestige; unlike Giffen goods they are not inferior.

18. Q18.The kinked demand curve model is associated with which market form?

    • A.perfect competition
    • B.monopoly
    • C.oligopoly✓ Correct Answer
    • D.monopsony

    Explanation: Paul Sweezy's model explains why oligopoly prices tend to be rigid.

19. Q19.A market in which there is only one buyer is called a:

    • A.monopoly
    • B.oligopoly
    • C.duopoly
    • D.monopsony✓ Correct Answer

    Explanation: Monopsony is the buyer-side counterpart of monopoly.

20. Q20.When the price elasticity of demand is exactly 1 (unitary), a change in price leaves total revenue:

    • A.higher
    • B.lower
    • C.unchanged✓ Correct Answer
    • D.doubled

    Explanation: With unitary elasticity the percentage change in quantity exactly offsets the percentage change in price.