119 + Interview Questions in DEMAND IN GENERAL AWARENESS Page 2 InterviewSolution

51.	Which of the following is not a degree of price elasticity of demand?(A) Unitary elastic demand(B) Perfectly inelastic demand(C) Relatively elastic demand(D) Moderately elastic demand
Answer» Correct option is (D) Moderately elastic demand

Discussion

52.	What is contraction of demand? How is it represented by demand curve?
Answer» Keeping other factors constant if price rises, contraction of demand occurs. Contraction of demand is represented by upward movement on demand curve.

Discussion

53.	Demand is determined by _______ factors.(A) 2(B) 3(C) 5(D) 6
Answer» Correct option is (C) 5

Discussion

54.	Which one has no relation with demand curve?(A) Specific time(B) Specific price(C) Consumer(D) Supply
Answer» Correct option is (D) Supply

Discussion

55.	Define a complementary good. How does change in price of one complementary good affects demand for another complementary good? Give one example.
Answer» A complementary good is a good whose use is related to the use of an associated or paired good. Two goods (A and B) are complementary if using more of good A requires the use of more of good B.For example, the demand for one good (printers) generates demand for the other (ink cartridges). If the price of one good falls and people buy more of it, they will usually buy more of the complementary good also, whether or not its price also falls. Similarly, if the price of one good rises and reduces its demand, it may reduce the demand for the paired or complementary good as well.

Discussion

56.	What is rightward shift of demand?
Answer» Keeping price factor as constant, if demand increases due to any other factor, the demand curve will shift towards right which is called rightward shift in demand curve.

Discussion

57.	How many types of price elasticity of demand are there?(A) Two(B) Four(C) Five(D) Seven
Answer» Correct option is (B) Four

Discussion

58.	Which kind of commodities are called complementary commodities?(A) Joint(B) Competitive(C) Not related(D) Alternative
Answer» Correct option is (A) Joint

Discussion

59.	There is _______ relation between income and demand.(A) Direct(B) Exponential(C) Inverse(D) Both (A) and (C)
Answer» Correct option is (A) Direct

Discussion

60.	What is the movement of demand curve when demand expands?(A) Upward(B) Downward(C) Right side on another demand curve(D) Left side on another demand curve
Answer» Correct option is (B) Downward

Discussion

61.	Give on example, when a consumer buys less of a commodity at the same price OR Give one reason for a leftward shift in demand curve.
Answer» Price of a substitude good falls.

Discussion

62.	What is the relationship between price and demand?(A) Positive(B) Inverse(C) Equal(D) Zero
Answer» Correct option is (B) Inverse

Discussion

63.	Why there is an inverse relationship between price and demand?
Answer» This inverse relationship between price and demand occurs because of two reasons. They are: Income effect and Substitution effect.

63.

Why there is an inverse relationship between price and demand?

Answer»

This inverse relationship between price and demand occurs because of two reasons. They are:

Income effect and
Substitution effect.

Discussion

64.	Explain the causes behind law of demand OR Why is there an inverse relationship between the price of a commodity and its quantity demanded ?
Answer» (i) Law of Diminishing Marginal Utility. (ii) Substitution Effect. (iii) Income Effect. (iv) Additional Customers. (v) Different Uses.

Discussion

65.	There is _______ relation between price and demand.(A) Direct(B) Inverse(C) Squared(D) Indirect
Answer» Correct option is (B) Inverse

Discussion

66.	State the factors influencing market demand of a good . Explain any one.
Answer» 1. Price of the Given Commodity: 2. Tastes and Preferences. 3. Income distribution. 4. Number of consumers in the market. 5. Expectation of future prices.

Discussion

67.	Increase in price of substitude good leads to :A. Expansion in DemandB. Increase in DemandC. Decrease in DemandD. Contraction in demand
Answer» Correct Answer - B

Discussion

68.	What will be the impact of the following changes on the demand curve of : (i) Cars when there is an increase in price of petrol (ii) Desktop Computers with increase in price of Laptops (iii) Bread with increase in its price (iv) Trousers due to change in preference in favour of Jeans (v) Bajra for a poor person when income of such person rises (vi) Coffee when price of tea falls (vii) Petrol if its price is expected to rise in near further.
Answer» (i) Demand curve of Cars will shift towards left with increase in price of petrol (complementary good) as it will become relatively costly to use both the goods (Car and Petrol) together (ii) Demand curve of Destop Computers will shift towards right with increase in price of Laptops (substitude good) as it will become relatively cheaper to use desktop computers instead of laptops. (iii) There will be no change in demand curve of Bread. There will be only an upward movement along the same demand curve (iv) Demand curve of Trousers will shift towards left as preference in favour of jeans will decrease the demand for trousers (assuming trousers and jeans are substitues). (v) Demand curve of Bajra for a poor person will shift towards left as with increase in income, poor person will shift from bajra to other superior substitutes (like wheat or rice) (vi) Demand curve of Coffee will shift towards left with fall in price in tea (substitude good) as it become relatively costly to use coffee instead of tea. (vii) Demand curve of Petrol will shift towards right as expectation of price rise in future will increase the demand of petrol in the present period.

Discussion

69.	A and B are substitute goods. Explain the effect of rise in price of A on the demand for B.
Answer» In case of substitute goods, increase in the price of one good causes an increase in the demand of its substitute good, For Example: Tea and Coffee are substitute goods. When the price of tea increases, it will lead to increase in the demand of coffee, as the consumers will now start consuming more of coffee in place of tea.

Discussion

70.	Which of the following does not fall into category of related goods?(A) Substitute goods(B) Inferior goods(C) Complementary(D) Prestigious goods
Answer» Correct option is (B) Inferior goods

Discussion

71.	Due to which of the following factor does the inverse relationship between price and demand occur?(A) Income effect(B) Price effect(C) Substitution effect(D) Both (A) and (C)
Answer» Correct option is (D) Both (A) and (C)

Discussion

72.	Explain how prices of the related goods affect demand for a good.
Answer» Substitute goods are those goods which can be used in place of one another for satisfaction of a particular want, like tea and coffee. Demand for a given commodity varies directly with the price of a substitute good. For example, if price of a substitute good (say, coffee) increases, then demand for given commodity (say, tea) will rise as tea will become relatively cheaper in comparison to coffee. Complementary goods are those goods which are used together to satisfy a particular want. Demand for a given commodity varies inversely with the price of a complementary good. For example, if price of a complementary good (say, sugar) increases, then demand for given commodity (say, tea) will fall as it will be relatively costlier to use both the goods together.

Discussion

73.	Distinguish between decrease and contraction of demand.
Answer» 1.When the quantity demanded falls due to an increase in price, other factors remaining constant, it is known as contraction in demand. A decrease in demand refers to a fall in the demand of a commodity caused due to any factor other than own price of the commodity. 2.There is an upward movement along the same demand curve in case of contraction of demand. There is a leftward shift in the demand curve in case of decrease in demand.

Discussion

74.	How does demand for a good falls when price of its substitute good falls?
Answer» If the price of a substitute good falls then the consumer may choose to replace his current brand with the substitute which has become cheaper. Hence, demand for a good falls when price of its substitute falls.

Discussion

75.	Which goods severely compete with each other?(A) Inferior goods(B) Complementary goods(C) Substitute goods(D) Prestigious goods
Answer» Correct option is (C) Substitute goods

Discussion

76.	If price of one of the complementary goods rises, the consumer(A) Will switch over to other brand(B) Will decrease its demand for both complementary goods(C) Will not be affected much(D) Will buy the complementary of that good
Answer» Correct option is (B) Will decrease its demand for both complementary goods

Discussion

77.	If with the rise in price of good Y, demand for goof X rises, the two goods are : (Choose the correct alternatives)A. SubstitutesB. ComplementsC. No relatedD. Jointly demanded
Answer» Correct Answer - A

Discussion

78.	Real income refers to the(A) Purchasing power of money income(B) Actual demand of good that will occur(C) Net income that a. person earns(D) Legal income of a person
Answer» Correct option is (A) Purchasing power of money income

Discussion

79.	How is the demand for a good affected by a rise in the prices of other goods ? Explain OR Does a rise of other good have same effect on demand for a commondity ?
Answer» No, rise in prices of other goods does not have same effect on demand for a commodity. (i) In case of rise in price of substitude goods, demand for the given commodity rises (ii) In case of rise in price of complementary goods, demand for the given commodity falls. (iii) In case of rise in price of unrelated goods, there is no change in demand for the given commodity.

Discussion

80.	Categorise the following changes as expansion, contraction, increase or decrease in demand (assuming the given commodity is a normal good) : (i) When prices of a substitude rises (ii) When price of the given commodity increases (iii) When income of the consumers increases (iv) When price of the given commodity is expected to fall in further (v) When the given commodity becomes a fashion good (vi) When there is sudden decrease in population due to an earthquake (vii) When the price of the given commodity falls.
Answer» Expansion in demand : (vii) , Contraction in demand (ii) , Increase in demand (i),(iii),(v) , Decrease in demand (iv),(vi).

Discussion

81.	Demand of a good _______ when price of its substitute falls.(A) Rises(B) Remains unaffected(C) Falls(D) Can be any of these
Answer» Correct option is (C) Falls

Discussion

82.	Exception to law of demand means(A) When price of a good falls, its demand rises(B) When price of a good falls, its demand contracts(C) When price of a good rises, its demand contracts(D) Both (A) and (C)
Answer» Correct option is (B) When price of a good falls, its demand contracts

Discussion

83.	What is the relation between good X and Y in each case. If with the fall in price of X demand for good Y (i) rises and (ii) falls? Give reason.s
Answer» (i) Good X and Y are complements since there existts a negative relation between price of one good and the demand for another. (ii) Good X and Y are substitutes as there is a positive relationship between price of X and demand for Y.

Discussion

84.	Who gave the concept of inferior goods?(A) Smith(B) Paul(C) Giffen(D) Robbins
Answer» Correct option is (C) Giffen

Discussion

85.	Express elasticity of demand when demand becomes infinite.
Answer» ε_p = \(\frac{Proportionate\, change\, in\, demand} {Proportionate\,change\, in\, price}\) ∞1 = ∞ (infinite)

Discussion

86.	What is perfectly inelastic demand?
Answer» When price of a commodity say commodity ‘K’ changes by any amount, say 10% but there is absolutely no change in its demand then such a demand is called perfectly inelastic demand.

Discussion

87.	Which of the following is an example of complementary goods ?A. Tea and CoffeeB. Coke and PepsiC. Rice and WheatD. None of these
Answer» Correct Answer - D

Discussion

88.	When two or more goods are demanded simultaneously, it is known as :A. Joint DemandB. Alternate DemandC. Direct DemandD. Composite Demand
Answer» Correct Answer - A

Discussion

89.	Explain the law of demand and state its assumptions.
Answer» Law of demand: The principle that explains the relationship between price and demand for a good, assuming the effect of all other determinants as constant is called the ‘Law of Demand’. This law was given by Prof. Alfred Marshall As per him “When other factors influencing demand remain unchanged, if price of a good falls, its demand expands and if price of a good rises, its demand contracts.” Thus, the law expresses an inverse relationship between price and demand. In this law, ‘price’ is the cause variable and demand is the effect variable. Assumptions of law of demand: Tastes and preferences of the consumer remain unchanged. Income of consumer remains unchanged. Price of substitute and complementary goods remain unchanged. Consumers do not make anticipation regarding future prices. Size of population remains the same.

89.

Explain the law of demand and state its assumptions.

Answer»

Law of demand:

The principle that explains the relationship between price and demand for a good, assuming the effect of all other determinants as constant is called the ‘Law of Demand’.
This law was given by Prof. Alfred Marshall As per him “When other factors influencing demand remain unchanged, if price of a good falls, its demand expands and if price of a good rises, its demand contracts.”
Thus, the law expresses an inverse relationship between price and demand.
In this law, ‘price’ is the cause variable and demand is the effect variable.

Assumptions of law of demand:

Tastes and preferences of the consumer remain unchanged.
Income of consumer remains unchanged.
Price of substitute and complementary goods remain unchanged.
Consumers do not make anticipation regarding future prices.
Size of population remains the same.

Discussion

90.	Define the market demand.
Answer» Market demand is the demand by all the consumers in the market.

Discussion

91.	Why is a good called on normal good?
Answer» A good having income effect positive is known as a normal good.

Discussion

92.	On what does taste and preference of a consumer depends?
Answer» Tastes and preferences are associated with the likes and dislikes of a consumer as well as several other factors such as age, trends, etc.

Discussion

93.	What are prestigious goods?
Answer» Certain goods which are priced very high and are generally consumed by very rich people like, expensive jewelry, expensive cars, expensive mobile phones, etc. are considered prestigious goods.

Discussion

94.	Why is the law of demand called as conditional law?
Answer» The law of demand holds true only on the condition that the factors influencing demand other than the price remains constant. Hence it is…

Discussion

95.	What is demand function?
Answer» Demand function: The cause and effect relationship between demand and its various factors can be expressed as a mathematical function. The demand function is a mathematical function between demand for a good and the determinants that affect its demand. The demand function shows that demand for a good is dependent on many factors such as price of the good, tastes and preferences of a consumer, income of the consumer, prices of related good, size of the population, etc. The mathematical form of the demand function: D_x = f (P_x, P_y, P_e, T, Y, U) Where D_x = Demand for commodity X f = Functional notation P_x = Price of commodity X P_y = Price of related commodity Y P_e = Expectations regarding future price T = Tastes and preferences of the consumer Y = Consumer’s income U = Other factors

95.

What is demand function?

Answer»

Demand function:
The cause and effect relationship between demand and its various factors can be expressed as a mathematical function.

The demand function is a mathematical function between demand for a good and the determinants that affect its demand.
The demand function shows that demand for a good is dependent on many factors such as price of the good, tastes and preferences of a consumer, income of the consumer, prices of related good, size of the population, etc.

The mathematical form of the demand function:
D_x = f (P_x, P_y, P_e, T, Y, U)

Where D_x = Demand for commodity X
f = Functional notation
P_x = Price of commodity X
P_y = Price of related commodity Y
P_e = Expectations regarding future price
T = Tastes and preferences of the consumer
Y = Consumer’s income
U = Other factors

Discussion

96.	What is substitution effect?
Answer» Substitution effect: When price of the concerned good falls, it becomes relatively cheaper than its substitutes. Hence, a consumer wHI reduce the consumption of substitute goods and increase the demand for the concerned good. This is called substitution effect. Example: Consider two varieties of pants, namely, a pair of cotton pants and denim pants. If the price of cotton pants falls and that of denim pants remains the same .then the consumer finds the cotton pants cheaper compared to the denim pants. Hence, the demand for cotton pants will rise.

96.

What is substitution effect?

Answer»

Substitution effect:

When price of the concerned good falls, it becomes relatively cheaper than its substitutes.
Hence, a consumer wHI reduce the consumption of substitute goods and increase the demand for the concerned good. This is called substitution effect.

Example:
Consider two varieties of pants, namely, a pair of cotton pants and denim pants. If the price of cotton pants falls and that of denim pants remains the same .then the consumer finds the cotton pants cheaper compared to the denim pants. Hence, the demand for cotton pants will rise.

Discussion

97.	State the substitution effect on demand.
Answer» When price of the concerned good falls, it becomes relatively cheaper than its substitutes. Hence, a consumer will reduce the consumption of substitute goods and increase the demand for the concerned good. This is called substitution effect on demand.

Discussion

98.	Define income effect and substitution effect.
Answer» 1. Income effect: When the monetary income of the consumer remains constant, but price of the good falls then his real income rises. Real income means the purchasing power of money income. When real income rises, a consumer can buy more quantity of a good and therefore its demand may rise. This is known as income effect on demand. 2. Substitution effect: When price of the concerned good falls, it becomes relatively cheaper than its substitutes. Hence, a consumer will reduce the consumption of substitute goods and increase the demand for the concerned good. This is called substitution effect.

98.

Define income effect and substitution effect.

Answer»

1. Income effect:

When the monetary income of the consumer remains constant, but price of the good falls then his real income rises. Real income means the purchasing power of money income. When real income rises, a consumer can buy more quantity of a good and therefore its demand may rise. This is known as income effect on demand.

2. Substitution effect:

When price of the concerned good falls, it becomes relatively cheaper than its substitutes.
Hence, a consumer will reduce the consumption of substitute goods and increase the demand for the concerned good. This is called substitution effect.

Discussion

99.	When products are expensive then how is the demand of prestigious goods of the rich?(A) More(B) Less(C) Zero(D) Negative
Answer» Correct option is (A) More

Discussion

100.	With the help of demand function : `Q_(d) = 40 -5p`, answer the following questions : (i) Calculate demand at price of Rs. 2 , (ii) Calcualte price, when demand will be 0 , (iii) Calculate demand, when price will be 0.
Answer» (i) `Q_(d) =40-5p`. Putting the value of price (i.e. Rs. 2), We get : `Q_(d) = 40 - 5xx 2 = 30` units (ii) Putting the value of demand (0), we get , `0= 40 - 5p`. It means, p = Rs. 8. At price of Rs. 8, demand will be zero (iii) Putting the value of price (0), we get : `Q_(d) = 40 - 5 xx 0 = 40` units. At demand of 40 units, price will be zero.

Discussion

Explore topic-wise InterviewSolutions in .

Which of the following is not a degree of price elasticity of demand?(A) Unitary elastic demand(B) Perfectly inelastic demand(C) Relatively elastic demand(D) Moderately elastic demand

What is contraction of demand? How is it represented by demand curve?

Demand is determined by _______ factors.(A) 2(B) 3(C) 5(D) 6

Which one has no relation with demand curve?(A) Specific time(B) Specific price(C) Consumer(D) Supply

Define a complementary good. How does change in price of one complementary good affects demand for another complementary good? Give one example.

What is rightward shift of demand?

How many types of price elasticity of demand are there?(A) Two(B) Four(C) Five(D) Seven

Which kind of commodities are called complementary commodities?(A) Joint(B) Competitive(C) Not related(D) Alternative

There is _______ relation between income and demand.(A) Direct(B) Exponential(C) Inverse(D) Both (A) and (C)

What is the movement of demand curve when demand expands?(A) Upward(B) Downward(C) Right side on another demand curve(D) Left side on another demand curve

Give on example, when a consumer buys less of a commodity at the same price OR Give one reason for a leftward shift in demand curve.

What is the relationship between price and demand?(A) Positive(B) Inverse(C) Equal(D) Zero

Why there is an inverse relationship between price and demand?

Explain the causes behind law of demand OR Why is there an inverse relationship between the price of a commodity and its quantity demanded ?

There is _______ relation between price and demand.(A) Direct(B) Inverse(C) Squared(D) Indirect

State the factors influencing market demand of a good . Explain any one.

Increase in price of substitude good leads to :A. Expansion in DemandB. Increase in DemandC. Decrease in DemandD. Contraction in demand

A and B are substitute goods. Explain the effect of rise in price of A on the demand for B.

Which of the following does not fall into category of related goods?(A) Substitute goods(B) Inferior goods(C) Complementary(D) Prestigious goods

Due to which of the following factor does the inverse relationship between price and demand occur?(A) Income effect(B) Price effect(C) Substitution effect(D) Both (A) and (C)

Explain how prices of the related goods affect demand for a good.

Distinguish between decrease and contraction of demand.

How does demand for a good falls when price of its substitute good falls?

Which goods severely compete with each other?(A) Inferior goods(B) Complementary goods(C) Substitute goods(D) Prestigious goods

If price of one of the complementary goods rises, the consumer(A) Will switch over to other brand(B) Will decrease its demand for both complementary goods(C) Will not be affected much(D) Will buy the complementary of that good

If with the rise in price of good Y, demand for goof X rises, the two goods are : (Choose the correct alternatives)A. SubstitutesB. ComplementsC. No relatedD. Jointly demanded

Real income refers to the(A) Purchasing power of money income(B) Actual demand of good that will occur(C) Net income that a. person earns(D) Legal income of a person

How is the demand for a good affected by a rise in the prices of other goods ? Explain OR Does a rise of other good have same effect on demand for a commondity ?

Demand of a good _______ when price of its substitute falls.(A) Rises(B) Remains unaffected(C) Falls(D) Can be any of these

Exception to law of demand means(A) When price of a good falls, its demand rises(B) When price of a good falls, its demand contracts(C) When price of a good rises, its demand contracts(D) Both (A) and (C)

What is the relation between good X and Y in each case. If with the fall in price of X demand for good Y (i) rises and (ii) falls? Give reason.s

Who gave the concept of inferior goods?(A) Smith(B) Paul(C) Giffen(D) Robbins

Express elasticity of demand when demand becomes infinite.

What is perfectly inelastic demand?

Which of the following is an example of complementary goods ?A. Tea and CoffeeB. Coke and PepsiC. Rice and WheatD. None of these

When two or more goods are demanded simultaneously, it is known as :A. Joint DemandB. Alternate DemandC. Direct DemandD. Composite Demand

Explain the law of demand and state its assumptions.

Define the market demand.

Why is a good called on normal good?

On what does taste and preference of a consumer depends?

What are prestigious goods?

Why is the law of demand called as conditional law?

What is demand function?

What is substitution effect?

State the substitution effect on demand.

Define income effect and substitution effect.

When products are expensive then how is the demand of prestigious goods of the rich?(A) More(B) Less(C) Zero(D) Negative

With the help of demand function : `Q_(d) = 40 -5p`, answer the following questions : (i) Calculate demand at price of Rs. 2 , (ii) Calcualte price, when demand will be 0 , (iii) Calculate demand, when price will be 0.