Theory of Demand & Supply – laws, curves, shifts, determinants, exceptions Quiz - ICSE Class 10 Economics

Free practice quiz: Theory of Demand & Supply – laws, curves, shifts, determinants, exceptions (ICSE Class 10 Economics). 52 multiple-choice questions with answers and explanations. Play online, no sign-up needed.

Sample questions

1. If the demand for a good increases due to a favorable change in consumer tastes, while the supply remains constant, what is the most likely impact on the equilibrium price and quantity?

   1. Equilibrium price increases, equilibrium quantity increases.
   2. Equilibrium price decreases, equilibrium quantity decreases.
   3. Equilibrium price increases, equilibrium quantity decreases.
   4. Equilibrium price decreases, equilibrium quantity increases.
   Show answer

   Answer: A. Equilibrium price increases, equilibrium quantity increases.

   An increase in demand, represented by a rightward shift of the demand curve, leads to a higher equilibrium price and a higher equilibrium quantity, assuming the supply curve remains unchanged (a rightward shift of the supply curve would be needed for quantity to decrease with price increase).

2. Which of the following represents an exception to the law of demand, where an increase in price leads to an increase in quantity demanded?

   1. A good for which consumers have elastic demand.
   2. A Giffen good.
   3. A good that is a close substitute for a more expensive good.
   4. A good whose price is expected to rise further in the future.
   Show answer

   Answer: B. A Giffen good.

   Giffen goods are a rare exception to the law of demand. For these inferior goods, a price increase leads to a decrease in real income, causing consumers to buy more of the Giffen good (as it's a staple) despite the higher price, due to the income effect outweighing the substitution effect.

3. Which of the following statements accurately describes a situation where the demand curve for a normal good shifts to the left?

   1. Consumer income increases.
   2. The price of a substitute good decreases.
   3. The price of the good itself decreases.
   4. Consumer tastes shift towards the good.
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   Answer: B. The price of a substitute good decreases.

   If the price of a substitute good falls, consumers will switch from the original good to the cheaper substitute. This leads to a decrease in demand for the original good, causing its demand curve to shift to the left.

4. If the price of a good decreases and the total revenue from selling that good also decreases, then the demand for the good must be:

   1. Elastic
   2. Inelastic
   3. Unit elastic
   4. Perfectly elastic
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   Answer: B. Inelastic

   Total Revenue (TR) = Price (P) x Quantity (Q). If price falls and TR also falls, it means the percentage decrease in price is greater than the percentage increase in quantity demanded. This is the definition of inelastic demand.

5. The supply curve for a good will be more elastic if:

   1. Producers have limited access to raw materials.
   2. Production technology is inflexible.
   3. It is easy for firms to enter or exit the industry.
   4. The good is highly perishable.
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   Answer: C. It is easy for firms to enter or exit the industry.

   Ease of entry and exit for firms in an industry contributes to a more elastic supply. If prices rise, new firms can more easily enter the market to increase supply. Conversely, if prices fall, firms can exit more easily, reducing supply. Other factors like limited resources, inflexible technology, and perishability tend to make supply less elastic.

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