Demand analysis: law of demand, elasticity, AR and MR - Question Bank

1. The elasticity of demand for a product is generally higher in the long run than in the short run because:
A) Consumers have more time to adjust their consumption habits.
B) Firms have more time to adjust production.
C) Prices tend to be lower in the long run.
D) Income levels are higher in the long run.
2. Which of the following represents the Average Revenue of a firm?
A) TR / Q
B) TR - TC
C) ΔTR / ΔQ
D) P * Q
3. If the price of coffee increases and the demand for tea decreases, coffee and tea are:
A) Independent goods.
B) Substitute goods.
C) Complementary goods.
D) Giffen goods.
4. The total revenue is maximized when Marginal Revenue (MR) is:
A) Positive.
B) Negative.
C) Zero.
D) Equal to AR.
5. When AR is falling, MR is:
A) Falling faster than AR.
B) Falling slower than AR.
C) Rising.
D) Constant.
6. Under what market condition is AR = MR?
A) Monopoly
B) Oligopoly
C) Monopolistic Competition
D) Perfect Competition
7. If the demand for electricity is inelastic, an increase in its price will likely lead to:
A) A significant decrease in electricity consumption.
B) A small decrease in electricity consumption.
C) An increase in electricity consumption.
D) No change in electricity consumption.
8. The formula for calculating price elasticity of demand using the point elasticity method is:
A) (dQ/dP) * (P/Q)
B) (ΔQ/Q) / (ΔP/P)
C) (dQ/dP) / (P/Q)
D) (ΔQ/ΔP) * (Q/P)
9. The Law of Demand does NOT apply to:
A) Normal goods.
B) Inferior goods.
C) Giffen goods.
D) Luxury goods.
10. A Giffen good is a good for which the demand curve is:
A) Downward sloping.
B) Upward sloping.
C) Horizontal.
D) Vertical.
11. If the income elasticity of demand for a luxury good is 2.5, it implies that as income rises by 1%, the quantity demanded rises by:
A) 0.4%
B) 1%
C) 2.5%
D) 10%
12. Which type of elasticity is relevant when analyzing the impact of advertising on sales?
A) Price elasticity of demand.
B) Income elasticity of demand.
C) Cross elasticity of demand.
D) Advertising elasticity of demand.
13. A firm operating in a market where it has to lower prices to sell more will find that its Marginal Revenue (MR) is:
A) Equal to the price.
B) Greater than the price.
C) Less than the price.
D) Zero.
14. The slope of the Marginal Revenue curve is typically:
A) Twice the slope of the Average Revenue curve.
B) Half the slope of the Average Revenue curve.
C) Equal to the slope of the Average Revenue curve.
D) The negative of the slope of the Average Revenue curve.
15. Which of the following statements is true regarding the relationship between MR, AR, and Price?
A) MR = AR = Price under monopoly.
B) MR < AR = Price under monopolistic competition.
C) MR > AR = Price under perfect competition.
D) MR = AR < Price under oligopoly.
16. If a firm doubles its output and its total revenue triples, then the demand for its product is:
A) Elastic.
B) Inelastic.
C) Unit elastic.
D) Perfectly elastic.
17. The Marginal Revenue (MR) curve is derived from the:
A) Total Cost curve.
B) Average Cost curve.
C) Demand curve (or AR curve).
D) Supply curve.
18. The concept of Average Revenue (AR) is closely related to:
A) Total Cost.
B) Price.
C) Marginal Cost.
D) Profit.
19. Demand for a good is likely to be more elastic if:
A) It is a necessity.
B) There are few close substitutes.
C) It represents a small fraction of a consumer's income.
D) There is a short time period.
20. Which of the following is a determinant of price elasticity of demand?
A) The price of the good.
B) The availability of close substitutes.
C) The time period considered.
D) All of the above.
21. If the price of a good is $10 and the quantity demanded is 100, and if the price falls to $8 and the quantity demanded rises to 150, the price elasticity of demand is approximately:
A) -1.75
B) -0.57
C) -2.5
D) -0.4
22. When the demand for a product is unit elastic, a price increase will lead to:
A) An increase in total revenue.
B) A decrease in total revenue.
C) No change in total revenue.
D) An increase in quantity demanded.
23. In a monopoly, the Marginal Revenue (MR) curve lies below the Average Revenue (AR) curve because:
A) The firm must lower the price for all units to sell an additional unit.
B) The firm can sell additional units at a higher price.
C) Total revenue always increases.
D) Average revenue is constant.
24. The demand curve for a monopolistic firm is:
A) Perfectly elastic.
B) Downward sloping.
C) Perfectly inelastic.
D) Upward sloping.
25. If a firm sells 5 units for $50 and 6 units for $54, its Marginal Revenue for the 6th unit is:
A) $4
B) $9
C) $54
D) $50
26. If a firm sells 10 units for $100 total revenue, its Average Revenue is:
A) $10
B) $100
C) $1000
D) $10000
27. The relationship between the demand curve and the Average Revenue (AR) curve for a firm is:
A) They are identical.
B) The AR curve is above the demand curve.
C) The AR curve is below the demand curve.
D) They are unrelated.
28. Under perfect competition, a firm is a price taker, meaning its MR curve is:
A) Downward sloping.
B) Upward sloping.
C) Equal to its AR curve and horizontal.
D) Equal to its AR curve and downward sloping.
29. When a firm sells more units, and the price must be lowered to sell these additional units, Marginal Revenue (MR) will be:
A) Greater than the price.
B) Equal to the price.
C) Less than the price.
D) Zero.
30. The relationship between Marginal Revenue (MR) and Average Revenue (AR) is that:
A) MR is always greater than AR.
B) MR is always less than AR.
C) MR equals AR when AR is at its maximum.
D) MR is equal to AR only under perfect competition.
31. What does Marginal Revenue (MR) represent in economics?
A) Total revenue divided by the quantity sold.
B) The additional revenue generated by selling one more unit of a good.
C) The total revenue earned by a firm.
D) The average revenue earned by a firm.
32. In most market structures other than perfect competition, the Average Revenue (AR) curve is:
A) Horizontal.
B) Downward sloping.
C) Upward sloping.
D) Vertical.
33. Under perfect competition, the Average Revenue (AR) curve is:
A) Downward sloping.
B) Upward sloping.
C) Horizontal.
D) Vertical.
34. What does Average Revenue (AR) represent in economics?
A) Total revenue divided by the quantity sold.
B) The additional revenue from selling one more unit.
C) Total revenue.
D) The price per unit of a good.
35. For an inferior good, the income elasticity of demand is:
A) Positive.
B) Negative.
C) Zero.
D) One.
36. For a normal good, the income elasticity of demand is:
A) Positive.
B) Negative.
C) Zero.
D) Infinite.
37. Income elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in:
A) Its own price.
B) The price of a related good.
C) Consumer income.
D) Advertising expenditure.
38. For complementary goods, the cross elasticity of demand is:
A) Positive.
B) Negative.
C) Zero.
D) One.
39. For substitute goods, the cross elasticity of demand is:
A) Positive.
B) Negative.
C) Zero.
D) Infinite.
40. Cross elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in:
A) Its own price.
B) The price of a related good.
C) Consumer income.
D) Consumer tastes.
41. Perfectly elastic demand occurs when the elasticity of demand is:
A) Equal to 0.
B) Equal to 1.
C) Infinite.
D) Less than 1.
42. Perfectly inelastic demand occurs when the elasticity of demand is:
A) Equal to 0.
B) Equal to 1.
C) Greater than 1.
D) Less than 1.
43. If a 5% increase in price leads to a 5% decrease in quantity demanded, the demand is:
A) Elastic.
B) Inelastic.
C) Unit elastic.
D) Perfectly elastic.
44. A good with a price elasticity of demand greater than 1 is considered:
A) Inelastic.
B) Elastic.
C) Unit elastic.
D) Perfectly inelastic.
45. If the price of a good increases by 10% and the quantity demanded falls by 20%, the price elasticity of demand is:
A) 0.5
B) -2.0
C) 2.0
D) -0.5
46. Elasticity of demand measures:
A) The responsiveness of quantity demanded to a change in price.
B) The responsiveness of quantity supplied to a change in price.
C) The responsiveness of quantity demanded to a change in income.
D) The responsiveness of price to a change in quantity demanded.
47. Which factor is assumed to remain constant when stating the Law of Demand?
A) Consumer income.
B) Price of the good.
C) Consumer tastes and preferences.
D) Price of related goods.
48. The Law of Demand is represented graphically by a demand curve that slopes:
A) Upward from left to right.
B) Downward from left to right.
C) Vertically.
D) Horizontally.
49. Ceteris paribus, if the price of a good falls, what happens to the quantity demanded according to the Law of Demand?
A) It falls.
B) It remains unchanged.
C) It rises.
D) It may rise or fall depending on other factors.
50. Which of the following best describes the Law of Demand?
A) As price increases, quantity demanded increases, ceteris paribus.
B) As price decreases, quantity demanded decreases, ceteris paribus.
C) As price increases, quantity demanded decreases, ceteris paribus.
D) As income increases, quantity demanded decreases, ceteris paribus.
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