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# CA Foundation | Law of Demand and Elasticity of Demand MCQ Test | Chanakya Commerce Classes

CA Foundation Paper 4 Business Economics Chapter 2 Unit 1 Law of Demand and Elasticity of Demand MCQ test page with instant scoring by Chanakya Commerce Classes.

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Chapter 2 · Unit 1 · Law of Demand and Elasticity of Demand
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CA Foundation · Paper 4 · Business Economics
Chapter 2 · Unit 1 ·
Law of Demand and Elasticity of Demand
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30 MCQs
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Question 01
In Economics, demand means:
desire alone to buy a commodity
need for a commodity
willingness and ability to buy at various prices during a given period
stock of goods in a market
Demand in Economics is not mere desire. It must be backed by ability to pay and willingness to spend at various prices during a period.
Question 02
Effective demand requires:
desire only
means to purchase only
willingness to pay only
desire, purchasing power and willingness to use that purchasing power
ICAI explicitly states that effective demand depends on desire, means to purchase and willingness to use those means.
Question 03
Quantity demanded is always expressed:
without reference to price
at a given price
without reference to time
only as annual stock
Quantity demanded has meaning only at a particular price.
Question 04
Demand is a flow concept because it is expressed:
per unit of time
only in physical units
as a one-time purchase
without any price
Demand refers to a continuous flow of purchases over time, such as per day, per week or per month.
Question 05
Which of the following is an important determinant of demand?
price of the commodity
price of related goods
disposable income
All of the above
ICAI lists own price, price of related goods, disposable income, tastes and preferences among key determinants.
Question 06
According to the law of demand, other things remaining constant, demand for a commodity:
rises when its price rises
falls when its price rises
remains unchanged when its price changes
first rises and then falls with price rise
The law of demand states an inverse relation between price and quantity demanded, ceteris paribus.
Question 07
The law of demand operates because of:
income effect and substitution effect
government budget only
law of diminishing returns only
increase in population only
ICAI links the inverse price-demand relation to the income effect and substitution effect.
Question 08
A demand schedule shows:
supply at different prices
income at different prices
different quantities demanded at different prices
cost of production at different outputs
A demand schedule presents the relationship between various prices and corresponding quantities demanded.
Question 09
A normal demand curve generally slopes:
upward from left to right
vertically upward
horizontally
downward from left to right
Because of the law of demand, the demand curve is downward sloping under normal conditions.
Question 10
When the price of tea falls and quantity demanded of tea rises, it is called:
increase in demand
extension or expansion of demand
decrease in demand
contraction of demand
A change in quantity demanded due to own price change is movement along the curve, called extension or contraction.
Question 11
When the price of a commodity rises and quantity demanded falls, it is called:
contraction of demand
decrease in demand
increase in demand
shift in demand
This is contraction of demand because the cause is the commodity’s own price increase.
Question 12
A rightward shift of the demand curve indicates:
extension of demand only
contraction of demand
increase in demand
decrease in demand
A shift to the right means more quantity is demanded at the same price because of non-price factors.
Question 13
A leftward shift of the demand curve indicates:
extension of demand
contraction of demand
increase in demand
decrease in demand
A decrease in demand means less quantity demanded at every price, shown by a leftward shift.
Question 14
Tea and coffee are generally:
complements
substitutes
inferior goods
Giffen goods
Tea and coffee satisfy similar wants and can be used in place of each other, so they are substitutes.
Question 15
If the price of coffee rises, demand for tea is likely to:
increase
decrease
remain unchanged always
become perfectly elastic
When the price of one substitute rises, demand for the other substitute tends to increase.
Question 16
Petrol and car are examples of:
substitutes
independent goods
complementary goods
luxury goods
Cars and petrol are used together, so they are complementary goods.
Question 17
If the price of petrol rises, demand for petrol-driven cars is likely to:
increase
remain unchanged
first rise then fall
decrease
An increase in price of a complementary good reduces demand for the related good.
Question 18
Most goods for which demand rises when consumer income rises are called:
inferior goods
normal goods
Giffen goods
joint goods
Normal goods are demanded in increasing quantities as income rises.
Question 19
Inferior goods are those for which demand:
falls when income rises beyond a certain level
always rises proportionately with income
never changes with income
is perfectly inelastic
ICAI notes that demand for some goods rises only up to a point and then falls as income rises further; these are inferior goods.
Question 20
Luxury goods generally show:
negative income elasticity
zero income elasticity
high positive income elasticity
perfectly inelastic demand
Demand for luxury and prestige goods rises strongly with increase in income.
Question 21
Price elasticity of demand measures responsiveness of quantity demanded to change in:
consumer income
price of related goods
advertisement expenditure
own price of the commodity
Price elasticity focuses on the percentage response of quantity demanded to a change in the commodity’s own price.
Question 22
If percentage change in quantity demanded is greater than percentage change in price, demand is:
inelastic
elastic
perfectly inelastic
unitary only if price falls
Demand is elastic when quantity responds more than proportionately to price change.
Question 23
When percentage change in quantity demanded equals percentage change in price, demand is:
perfectly elastic
inelastic
unitary elastic
perfectly inelastic
Unitary elasticity means proportionate response of quantity demanded to price change.
Question 24
Demand for salt is usually regarded as:
relatively inelastic
perfectly elastic
highly elastic
unitary elastic always
Necessaries with limited substitutes and small share in budget tend to have inelastic demand.
Question 25
Cross elasticity of demand between two substitute goods is generally:
negative
zero
less than zero always
positive
For substitutes, a rise in price of one increases demand for the other, so cross elasticity is positive.
Question 26
Cross elasticity of demand between two complementary goods is generally:
positive
negative
infinite
always one
For complements, a rise in price of one reduces demand for the other, so cross elasticity is negative.
Question 27
Income elasticity of demand for inferior goods is generally:
positive
greater than one always
negative
zero
Demand for inferior goods falls when income rises, so income elasticity is negative.
Question 28
Which of the following tends to make demand more elastic?
availability of close substitutes
commodity is a necessity
commodity takes a very small share of income
habit-forming consumption
When close substitutes are available, consumers can switch easily, making demand more elastic.
Question 29
Which of the following is most likely to cause an increase in demand for a commodity?
rise in its own price
fall in consumer income in case of normal good
rise in price of its complement
rise in price of its substitute
A rise in price of a substitute shifts demand for the commodity to the right.
Question 30
Which statement correctly distinguishes movement along a demand curve from shift of a demand curve?
Both are caused only by own price changes
Movement is caused by own price change; shift is caused by non-price factors
Movement means increase in demand and shift means contraction
There is no difference between the two
This is a core CA Foundation distinction: own price changes cause movement; other determinants cause shifts.
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MCQ Test · Chapter 2 · Unit 1 · Law of Demand and Elasticity of Demand