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Theory of Demand and Supply: With examples and Multiple choice questions



Theory of Demand and Supply:


Demand:

The demand for a good or service is the quantity of that good or service that consumers are willing and able to buy at a particular price and time. Generally, there is an inverse relationship between price and quantity demanded: as the price of a good decreases, the quantity demanded increases, and vice versa.


Supply:

The supply of a good or service is the quantity that producers are willing and able to sell at a particular price and time. There is a direct relationship between price and quantity supplied: as the price of a good increases, the quantity supplied also increases.


Equilibrium:

The equilibrium price is the point where the quantity demanded equals the quantity supplied. At this price, the market is in balance, and there is neither extra demand nor excess supply.


Factors Affecting Demand and Supply:

  1. Price: Changes in the price of good directly impact demand and supply.

  2. Income: An increase in income can lead to increased demand for normal goods.

  3. Preferences: Changes in consumer preferences influence demand.

  4. Technology: Technological advancements can impact supply efficiency.

  5. Government Policies: Regulations and taxes can affect both demand and supply.


Examples:

  1. Demand Example:

  • Scenario: The price of smartphones decreases.

  • Effect: More people can afford smartphones, increasing the demand for them.

  1. Supply Example:

  • Scenario: Advances in manufacturing technology for electric cars.

  • Effect: The cost of production decreases, leading to an increase in the supply of electric cars.


Multiple Choice Questions:

1. What is demand?

  • A. The quantity producers are willing to sell.

  • B. The quantity consumers are willing to buy.

  • C. The equilibrium price.

  • D. The quantity supplied.

Answer: B


2. What is the relationship between price and quantity demanded?

  • A. Direct

  • B. Inverse

  • C. No relationship

  • D. Random

Answer: B


3. What is the equilibrium point in the market?

  • A. Where demand is zero.

  • B. Where quantity demanded equals quantity supplied.

  • C. Where supply is infinite.

  • D. Where price is highest.

Answer: B


4. What is the impact of increase in consumer income on demand for normal goods?

  • A. Increase in demand

  • B. Decrease in demand

  • C. No impact

  • D. No normal goods exist

Answer: A


5. What is the relationship between price and quantity supplied?

  • A. Inverse

  • B. Direct

  • C. No relationship

  • D. Unpredictable

Answer: B


6. What happens when there is excess demand in market?

  • A. Prices increase.

  • B. Prices decrease.

  • C. No change in prices.

  • D. Quantity demanded decreases.

Answer: A


7. How do technological advancements affect supply?

  • A. Decrease in supply efficiency.

  • B. Increase in supply efficiency.

  • C. No impact on supply.

  • D. Decrease in demand.

Answer: B


8. What is a determinant of supply?

  • A. Consumer preferences.

  • B. Government policies.

  • C. Changes in income.

  • D. Quantity demanded.

Answer: B


9. What is the impact of a decrease in the price of a good on demand?

  • A. Decrease in demand.

  • B. Increase in demand.

  • C. No change in demand.

  • D. Increase in supply.

Answer: B


10. What is the result of excess supply in the market?

  • A. Prices increase.

  • B. Prices decrease.

  • C. No change in prices.

  • D. Quantity supplied decreases.

Answer: B


11. What is a factor affecting demand and supply?

  • A. Market size.

  • B. Consumer preferences.

  • C. Technological advancements.

  • D. All of the above.

Answer: D


12. How does an increase in taxes impact supply?

  • A. Increases supply.

  • B. Decreases supply.

  • C. No impact on supply.

  • D. Increases demand.

Answer: B


13. In the Theory of Demand and Supply, what does the equilibrium price represent?

  • A. The highest possible price.

  • B. The point where quantity demanded equals quantity supplied.

  • C. The point where supply is infinite.

  • D. The lowest possible price.

Answer: B


14. What does an increase in consumer preferences for organic products lead to?

  • A. Decrease in demand for organic products.

  • B. No change in demand for organic products.

  • C. Increase in demand for organic products.

  • D. Increase in supply of organic products.

Answer: C


15. What happens when there is excess demand in the market?

  • A. Prices decrease.

  • B. Prices increase.

  • C. No change in prices.

  • D. Quantity supplied decreases.

Answer: B


16. What is the primary determinant of demand according to the Theory of Demand and Supply?

  • A. Consumer income.

  • B. Price.

  • C. Government policies.

  • D. Technology.

Answer: B


17. What does a decrease in the price of a substitute good lead to?

  • A. Increase in demand.

  • B. Decrease in demand.

  • C. No change in demand.

  • D. Decrease in supply.

Answer: A


18. How does an increase in the price of a complement good affect demand?

  • A. Increase in demand.

  • B. Decrease in demand.

  • C. No change in demand.

  • D. Increase in supply.

Answer: B


19. What is the impact of an increase in the cost of production on supply?

  • A. Increase in supply.

  • B. Decrease in supply.

  • C. No impact on supply.

  • D. Increase in demand.

Answer: B


20. In the Theory of Demand and Supply, what is the impact of decrease in consumer income on demand for inferior goods?

  • A. Increase in demand.

  • B. Decrease in demand.

  • C. No change in demand.

  • D. No inferior goods exist.

Answer: A

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