Demand Quiz - ICSE Class 12 Economics
Free practice quiz: Demand (ICSE Class 12 Economics). 42 multiple-choice questions with answers and explanations. Play online, no sign-up needed.
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When the price of a good increases, and the demand for that good decreases, this illustrates the law of demand. However, under which specific market structure is the firm most likely to experience a significant reduction in demand when it raises its price, due to the availability of close substitutes?
- Monopoly
- Oligopoly
- Perfect Competition
- Monopolistic Competition
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Answer: D. Monopolistic Competition
In monopolistic competition, firms sell differentiated products that are close substitutes. If a firm raises its price, consumers can easily switch to competitors offering similar products, leading to a substantial decrease in demand. In a monopoly, there are no close substitutes. In perfect competition, firms are price takers and cannot influence price. In an oligopoly, firms are interdependent, and the effect of a price change depends on competitors' reactions.
The statement 'the demand for wheat is relatively inelastic' implies that:
- A 10% increase in the price of wheat will lead to a 10% decrease in the quantity demanded.
- A 10% increase in the price of wheat will lead to a less than 10% decrease in the quantity demanded.
- A 10% increase in the price of wheat will lead to a greater than 10% decrease in the quantity demanded.
- A 10% increase in the price of wheat will lead to no change in the quantity demanded.
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Answer: B. A 10% increase in the price of wheat will lead to a less than 10% decrease in the quantity demanded.
Elasticity of demand measures the responsiveness of quantity demanded to a change in price. 'Relatively inelastic' demand means that the percentage change in quantity demanded is less than the percentage change in price. Therefore, a 10% price increase will result in a less than 10% decrease in quantity demanded. The absolute value of the price elasticity of demand will be between 0 and 1.
What happens to the total revenue if the price of a good with unit elastic demand is increased?
- Total revenue increases.
- Total revenue decreases.
- Total revenue remains the same.
- Total revenue becomes zero.
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Answer: C. Total revenue remains the same.
When the price elasticity of demand is unit elastic (E_d = -1), any change in price is exactly offset by an equal and opposite percentage change in quantity demanded. For example, if the price increases by 10%, the quantity demanded will decrease by 10%. As a result, the total revenue (Price x Quantity) remains unchanged.
If the cross-price elasticity of demand between two goods is positive, it implies that the goods are:
- Complements
- Substitutes
- Independent
- Inferior
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Answer: B. Substitutes
A positive cross-price elasticity of demand indicates that as the price of one good increases, the demand for the other good also increases. This relationship is characteristic of substitute goods, where consumers switch to the relatively cheaper good when the price of one rises.
If a 15% increase in income leads to a 30% increase in the quantity demanded of a good, the income elasticity of demand is:
- 0.5
- -0.5
- 2.0
- -2.0
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Answer: C. 2.0
Income elasticity of demand (E_income) is calculated as the percentage change in quantity demanded (%ΔQd) divided by the percentage change in income (%ΔI): E_income = %ΔQd / %ΔI. Given %ΔI = 15% and %ΔQd = 30%, E_income = 30% / 15% = 2.0. Since the elasticity is positive and greater than 1, the good is a luxury good.