CUET UG Economics Booster Test 2 - Market Demand and Elasticity -

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CUET UG Economics Booster Test 2 - Market Demand and Elasticity

⏱️ 30 Minutes

❓ 20 Questions

📌 Answers are locked once submitted — results and explanations appear at the end.

CUET UG Economics Booster Test 2 - Market Demand and Elasticity

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QUESTION 1 OF 20

Suppose there are only two consumers in a market. At price Rs. 12, consumer 1 demands 0 units (since d₁(p) = 10 - p) and consumer 2 demands 3 units (since d₂(p) = 15 - p). What is the total market summation at this price?

Answer Review

1 Suppose there are only two consumers in a market. At price Rs. 12, consumer 1 demands 0 units (since d₁(p) = 10 - p) and consumer 2 demands 3 units (since d₂(p) = 15 - p). What is the total market summation at this price?

A 12 units

B 0 units

C 3 units

D 15 units

💡 Short Explanation

Consumer 1 demands 0 units. Consumer 2 demands 3 units. Market demand = 0 + 3 = 3 units.

✅ Correct Answer Explanation

Market demand is obtained by adding the quantities demanded by all consumers at a given price. At price Rs. 12: Consumer 1 demand = 0 units Consumer 2 demand = 3 units So, Market Demand = 0 + 3 = 3 units

❓ Why Other Options Are Incorrect

Option A: 12 is the price, not market demand.
Option B: Ignores Consumer 2's demand.
Option D: 15 is part of Consumer 2's demand function, not total demand.

🎯 Strategy

Used

Concept MCQ

🧠 Memory Trick

Market Demand = Sum of Individual Demands

📚 Theory of Consumer Behaviour – Market Demand

2 Complete the statement: Market demand is defined as the total demand of all consumers taken together, which means an aggregate market choice graphically reflects the ________ of individual demands at each price level.

A vertical summation

B horizontal summation

C aggregate division

D proportionate averaging

💡 Short Explanation

Market demand adds individual quantities. Quantities are added at the same price. This is horizontal summation.

✅ Correct Answer Explanation

Market demand is obtained by adding the quantities demanded by all consumers at each price level. Since quantity is measured on the horizontal axis, this graphical addition is called horizontal summation of individual demand curves.

❓ Why Other Options Are Incorrect

Option A: Vertical summation adds prices, not quantities.
Option C: Demand is not found by division.
Option D: Market demand is total demand, not average demand.

🎯 Strategy

Used

Statement Completion

🧠 Memory Trick

Same Price → Add Quantities Horizontally

📚 Theory of Consumer Behaviour – Horizontal Summation Method

3 Arrange the steps to graphically add two linear demand curves d₁(p)=10-p and d₂(p)=15-p to find the market demand function:
1. Plot the resulting kinked curve to represent the total market demand.
2. Identify that for prices above 15, market demand is 0.
3. Add the equations for prices 10 or less to get the market demand: (10-p) + (15-p) = 25 - 2p.
4. Determine that for prices strictly between 10 and 15, market demand is solely given by consumer 2: 15 - p.

A 2, 4, 3, 1

B 1, 2, 3, 4

C 3, 4, 2, 1

D 4, 2, 1, 3

💡 Short Explanation

First identify zero-demand range. Then find partial market demand. Then add both consumers' demand. Finally plot the market demand curve.

✅ Correct Answer Explanation

For the market demand function: 1. If price is above 15, neither consumer demands the good, so market demand is 0. 2. If price is between 10 and 15, only Consumer 2 demands the good, so market demand is 15 - p. 3. If price is 10 or less, both consumers demand the good, so market demand is (10 - p) + (15 - p) = 25 - 2p. 4. These sections are then plotted to form the kinked market demand curve.

❓ Why Other Options Are Incorrect

Option B: Begins with plotting before deriving the sections.
Option C: Starts with the final equation before identifying price intervals.
Option D: Places plotting before deriving the complete market demand.

🎯 Strategy

Used

Sequence

🧠 Memory Trick

Price Range → Add Consumers → Plot Market Demand

📚 Theory of Consumer Behaviour – Market Demand Function

4 Match the following price intervals to their correct aggregated market demand equation for two consumers where d₁ = 10 - p and d₂ = 15 - p.

List I	List II
1. Price > 15	a. Market Demand is 0
2. 10 < Price ≤ 15	b. Market Demand is 15 - p
3. Price ≤ 10	c. Market Demand is 25 - 2p
4. Price = 12	d. Market Demand is 3 units

A 1-a, 2-b, 3-c, 4-d

B 1-b, 2-a, 3-d, 4-c

C 1-c, 2-d, 3-a, 4-b

D 1-d, 2-c, 3-b, 4-a

💡 Short Explanation

Above price 15, no demand exists. Between 10 and 15, only Consumer 2 demands. At price 10 or less, both consumers demand. At price 12, market demand is 3 units.

✅ Correct Answer Explanation

The individual demand functions are: d₁ = 10 - p d₂ = 15 - p So: Price > 15: Both demands are zero, so market demand is 0. 10 < Price ≤ 15: Consumer 1 demands zero, Consumer 2 demands 15 - p. Price ≤ 10: Both consumers demand, so market demand is 25 - 2p. Price = 12: Market demand = 15 - 12 = 3 units.

❓ Why Other Options Are Incorrect

Option B: Reverses the zero-demand and middle-range cases.
Option C: Incorrectly matches all price intervals.
Option D: Misplaces the price-specific demand value.

🎯 Strategy

Used

Match the Following

🧠 Memory Trick

Low Price → Both Consumers

📚 Theory of Consumer Behaviour – Horizontal Summation of Demand

5 Which of the following statements is/are true about goods exhibiting a positive income relation?
1. Their demand curve shifts rightward when the consumer's income increases.
2. They are classified by economists as normal goods.
3. Their demand curve shifts leftward when the consumer's income increases.

A 1 and 2

B 2 and 3

C 1 and 3

D 1, 2, and 3

💡 Short Explanation

Positive income relation means demand rises with income. Such goods are normal goods. Income increase shifts demand rightward.

✅ Correct Answer Explanation

Goods having a positive income relation are called normal goods. For these goods, an increase in consumer income raises demand at every price, shifting the demand curve rightward. Therefore, Statements 1 and 2 are correct, while Statement 3 is incorrect.

❓ Why Other Options Are Incorrect

Option B: Statement 3 is incorrect.
Option C: Statement 2 is correct, but Statement 3 is incorrect.
Option D: Incorrectly includes Statement 3.

🎯 Strategy

Used

Multi-correct

🧠 Memory Trick

Normal Good = Income ↑ → Demand ↑

📚 Theory of Consumer Behaviour – Normal Goods

6 Assertion (A): Coarse cereals often act as an inferior good for a consumer at higher income levels.
Reason (R): Beyond a certain income level, any further increase in income induces the consumer to reduce consumption of coarse cereals and switch to better quality cereal substitutes.

A Both A and R are true, and R is the correct explanation of A.

B Both A and R are true, but R is not the correct explanation of A.

C A is true, but R is false.

D A is false, but R is true.

💡 Short Explanation

Coarse cereals are often inferior goods. Higher income reduces their demand. Consumers switch to superior alternatives.

✅ Correct Answer Explanation

Inferior goods are those whose demand decreases as income increases. Coarse cereals are a common example because, after reaching a higher income level, consumers generally prefer better-quality cereals. Thus, both the Assertion and the Reason are true, and the Reason correctly explains the Assertion.

❓ Why Other Options Are Incorrect

Option B: The Reason directly explains the Assertion.
Option C: The Reason is true.
Option D: The Assertion is also true.

🎯 Strategy

Used

Assertion and Reason

🧠 Memory Trick

Income ↑ → Inferior Goods ↓

📚 Theory of Consumer Behaviour – Inferior Goods

7 Complete the statement: A Giffen good is considered an exception to the Law of Demand because a rise in the consumer's purchasing power (from a price drop) induces them to reduce consumption, showing that the negative ________ effect strongly outweighs the positive ________ effect.

A substitution, income

B income, substitution

C price, utility

D complement, substitute

💡 Short Explanation

Giffen goods are exceptions to the Law of Demand. Negative income effect dominates. Substitution effect is weaker.

✅ Correct Answer Explanation

For a Giffen good, the negative income effect is stronger than the positive substitution effect. When the price falls, consumers experience an increase in purchasing power, causing them to reduce consumption of the inferior Giffen good and purchase better alternatives.

❓ Why Other Options Are Incorrect

Option A: Reverses the two effects.
Option C: Price and utility are not the relevant effects.
Option D: Complement and substitute are unrelated here.

🎯 Strategy

Used

Statement Completion

🧠 Memory Trick

Giffen = Income Effect > Substitution Effect

📚 Theory of Consumer Behaviour – Giffen Goods

8 Match the following types of goods to their typical demand responsiveness traits.

List I	List II
1. Necessity (e.g., staple food)	a. Inelastic demand (Not very responsive to price changes)
2. Luxury good	b. Highly responsive demand (Elastic demand)
3. Giffen good	c. Positive price relation (Demand rises when price rises)
4. Price Elasticity	d. Measure of responsiveness of demand to price changes

A 1-a, 2-b, 3-c, 4-d

B 1-b, 2-a, 3-d, 4-c

C 1-c, 2-d, 3-a, 4-b

D 1-d, 2-c, 3-b, 4-a

💡 Short Explanation

Necessities have inelastic demand. Luxury goods have elastic demand. Giffen goods show a positive price relationship. Price elasticity measures responsiveness.

✅ Correct Answer Explanation

Necessity goods are generally price inelastic. Luxury goods have elastic demand because consumers are more responsive to price changes. Giffen goods exhibit a positive relationship between price and demand. Price elasticity measures how responsive demand is to changes in price.

❓ Why Other Options Are Incorrect

Option B: Reverses necessity and luxury characteristics.
Option C: Incorrectly matches all concepts.
Option D: Misclassifies elasticity and demand behavior.

🎯 Strategy

Used

Match the Following

🧠 Memory Trick

Need → Inelastic | Luxury → Elastic | Giffen → Price ↑ Demand ↑

📚 Theory of Consumer Behaviour – Price Elasticity and Giffen Goods

9 Arrange the sequence of events reflecting the substitutes price effect between coffee and tea.
1. The demand curve for coffee shifts leftward.
2. The market price of tea drops significantly.
3. Consumers substitute the now cheaper tea for coffee.
4. The quantity of coffee demanded goes down at a given price.

A 2, 3, 4, 1

B 1, 2, 3, 4

C 3, 4, 1, 2

D 2, 1, 4, 3

💡 Short Explanation

Tea becomes cheaper. Consumers switch from coffee to tea. Coffee demand falls. Coffee demand curve shifts leftward.

✅ Correct Answer Explanation

When the price of tea decreases, consumers substitute tea for coffee because they are substitute goods. This reduces the quantity demanded of coffee, causing the coffee demand curve to shift leftward.

❓ Why Other Options Are Incorrect

Option B: Begins with the final outcome.
Option C: Starts after substitution has already occurred.
Option D: Places the demand shift before consumer substitution.

🎯 Strategy

Used

Sequence

🧠 Memory Trick

Tea Price ↓ → Switch to Tea → Coffee Demand ↓ → Curve Left

📚 Theory of Consumer Behaviour – Substitute Goods

10 Complete the statement: Because shoes and socks are complementary goods, their consumption is linked, meaning the demand for shoes typically moves in the ________ direction of the price of socks.

A same

B opposite

C parallel

D upward

💡 Short Explanation

Complementary goods are consumed together. Price increase of one reduces demand for the other. Demand moves opposite to the price of its complement.

✅ Correct Answer Explanation

Shoes and socks are complementary goods. If the price of socks increases, consumers buy fewer socks, which also reduces the demand for shoes. Therefore, the demand for shoes moves in the opposite direction of the price of socks.

❓ Why Other Options Are Incorrect

Option A: Demand does not move in the same direction.
Option C: "Parallel" has no economic meaning here.
Option D: Demand does not always move upward.

🎯 Strategy

Used

Statement Completion

🧠 Memory Trick

Complement Price ↑ → Partner Demand ↓

📚 Theory of Consumer Behaviour – Complementary Goods

11 Which of the following factors will cause a rightward shift in the demand curve for a commodity?
1. An increase in the consumer's income (for a normal good).
2. A favorable change in tastes and preferences for the good.
3. An increase in the price of a complementary good.

A 1 and 2

B 2 and 3

C 1 and 3

D 1, 2, and 3

💡 Short Explanation

Higher income increases demand for normal goods. Favorable preferences raise demand. Higher prices of complementary goods reduce demand.

✅ Correct Answer Explanation

A demand curve shifts rightward when consumers demand more of the good at every price. This occurs due to: An increase in income for normal goods. A favorable change in tastes and preferences. However, an increase in the price of a complementary good reduces demand, causing a leftward shift.

❓ Why Other Options Are Incorrect

Option B: Statement 3 causes a leftward shift.
Option C: Statement 3 is incorrect.
Option D: Incorrectly includes Statement 3.

🎯 Strategy

Used

Multi-correct

🧠 Memory Trick

Income ↑ + Preference ↑ = Demand → Right

📚 Theory of Consumer Behaviour – Demand Curve Shifts

12 Match the following non-price factor influences to their effect on the demand curve.

List I	List II
1. Favorable change in consumer preferences	a. Demand curve shifts rightward
2. Increase in the price of a substitute good	b. Demand curve shifts rightward
3. Increase in the price of a complementary good	c. Demand curve shifts leftward
4. Increase in income for a normal good	d. Demand curve shifts rightward

A 1-a, 2-b, 3-c, 4-d

B 1-c, 2-a, 3-d, 4-b

C 1-b, 2-c, 3-a, 4-d

D 1-d, 2-a, 3-b, 4-c

💡 Short Explanation

Better preferences increase demand. Costlier substitutes increase demand. Costlier complements reduce demand. Higher income increases demand for normal goods.

✅ Correct Answer Explanation

A favorable change in preferences increases demand. An increase in the price of a substitute shifts demand rightward. An increase in the price of a complementary good shifts demand leftward. An increase in income shifts demand rightward for normal goods.

❓ Why Other Options Are Incorrect

Option B: Reverses several demand shifts.
Option C: Incorrectly matches substitute and complement effects.
Option D: Misclassifies the effect of complementary goods.

🎯 Strategy

Used

Match the Following

🧠 Memory Trick

Complement Price ↑ → Left

📚 Theory of Consumer Behaviour – Factors Causing Demand Curve Shifts

13 Assertion (A): Price elasticity of demand is defined as the percentage change in demand for the good divided by the percentage change in its price.
Reason (R): It acts as a standardized measure of how responsive the quantity demanded is to a change in the good's own price.

A Both A and R are true, and R is the correct explanation of A.

B Both A and R are true, but R is not the correct explanation of A.

C A is true, but R is false.

D A is false, but R is true.

💡 Short Explanation

Elasticity measures responsiveness. It compares percentage changes. The reason correctly explains the definition.

✅ Correct Answer Explanation

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Using percentage changes provides a standardized measure of responsiveness, making comparisons possible across different goods. Hence, both the Assertion and the Reason are true, and the Reason correctly explains the Assertion.

❓ Why Other Options Are Incorrect

Option B: The Reason directly explains the Assertion.
Option C: The Reason is true.
Option D: The Assertion is also true.

🎯 Strategy

Used

Assertion and Reason

🧠 Memory Trick

Elasticity = %ΔQ ÷ %ΔP

📚 Theory of Consumer Behaviour – Price Elasticity of Demand

14 Complete the statement: While the demand for a good is negatively related to its price, making elasticity a negative number, economists for simplicity always refer to the ________ value of the elasticity as a pure number.

A marginal

B fractional

C absolute

D negative

💡 Short Explanation

Demand elasticity is naturally negative. Economists ignore the negative sign. The absolute value is commonly reported.

✅ Correct Answer Explanation

Since price and quantity demanded move in opposite directions, the numerical value of price elasticity is negative. However, economists conventionally use its absolute value so that elasticity can be discussed as a positive measure of responsiveness.

❓ Why Other Options Are Incorrect

Option A: Marginal value is unrelated.
Option B: Fractional value is not the convention.
Option D: Economists generally ignore the negative sign.

🎯 Strategy

Used

Statement Completion

🧠 Memory Trick

Elasticity = Ignore the Minus Sign

📚 Theory of Consumer Behaviour – Measurement of Price Elasticity

15 Match the following elasticity categories with their correct numerical representation.

List I	List II
1. Elastic Demand	a. \|eD\| > 1
2. Inelastic Demand	b. \|eD\| < 1
3. Unitary Elastic Demand	c. \|eD\| = 1
4. Perfectly Inelastic Demand	d. \|eD\| = 0

A 1-a, 2-b, 3-c, 4-d

B 1-b, 2-c, 3-a, 4-d

C 1-c, 2-a, 3-d, 4-b

D 1-d, 2-b, 3-c, 4-a

💡 Short Explanation

Elastic demand exceeds one. Inelastic demand is less than one. Unitary elasticity equals one. Perfectly inelastic elasticity equals zero.

✅ Correct Answer Explanation

Elastic Demand: |eD| > 1 Inelastic Demand: |eD| < 1 Unitary Elastic Demand: |eD| = 1 Perfectly Inelastic Demand: |eD| = 0 These categories classify demand according to its responsiveness to price changes.

❓ Why Other Options Are Incorrect

Option B: Reverses elastic and unitary values.
Option C: Incorrectly matches all elasticity categories.
Option D: Misclassifies elastic demand.

🎯 Strategy

Used

Match the Following

🧠 Memory Trick

Elastic > 1 | Inelastic < 1 | Unitary = 1 | Perfectly Inelastic = 0

📚 Theory of Consumer Behaviour – Categories of Price Elasticity of Demand

16 Which of the following features properly describe a unitary elastic demand curve?
1. The percentage change in quantity exactly equals the percentage change in price.
2. Total expenditure on the good remains constant regardless of price changes.
3. The curve often takes the geometric shape of a rectangular hyperbola (pq = c).

A 1 and 2

B 2 and 3

C 1 and 3

D 1, 2, and 3

💡 Short Explanation

Percentage changes in price and quantity are equal. Total expenditure remains unchanged. A rectangular hyperbola represents unitary elasticity.

✅ Correct Answer Explanation

When demand is unitary elastic (|eD| = 1): The percentage change in quantity demanded exactly equals the percentage change in price. Total expenditure (Price × Quantity) remains constant despite price changes. A rectangular hyperbola (pq = constant) is the standard geometric representation of unitary elastic demand. Hence, all three statements are correct.

❓ Why Other Options Are Incorrect

Option A: Omits the rectangular hyperbola property.
Option B: Omits the basic definition of unitary elasticity.
Option C: Omits the constant expenditure property.

🎯 Strategy

Used

Multi-correct

🧠 Memory Trick

Unitary = Equal % Change + Constant Expenditure + Rectangular Hyperbola

📚 Theory of Consumer Behaviour – Unitary Price Elasticity of Demand

17 Assertion (A): At the point where price (p = a/b) on the linear demand curve (d(p) = a - bp), the elasticity is infinite.
Reason (R): At the price (p = a/b), the quantity demanded (q = 0), and dividing by zero in the point elasticity formula yields infinity.

A Both A and R are true, and R is the correct explanation of A.

B Both A and R are true, but R is not the correct explanation of A.

C A is true, but R is false.

D A is false, but R is true.

💡 Short Explanation

At the price intercept, demand becomes zero. Point elasticity becomes infinitely large. The reason correctly explains the assertion.

✅ Correct Answer Explanation

For the linear demand function d(p)=a−bp When p=a/b quantity demanded becomes q=a−b(a/b)=0. Since point elasticity involves dividing by the quantity demanded, the elasticity tends to infinity at the price intercept. Therefore, both the Assertion and Reason are true, and the Reason correctly explains the Assertion.

❓ Why Other Options Are Incorrect

Option B: The Reason directly explains the Assertion.
Option C: The Reason is true.
Option D: Both statements are true.

🎯 Strategy

Used

Assertion and Reason

🧠 Memory Trick

Price Intercept → Quantity = 0 → Elasticity = ∞

📚 Theory of Consumer Behaviour – Point Elasticity on a Linear Demand Curve

18 Arrange the following points on a downward-sloping linear demand curve in order of decreasing elasticity (from highest to lowest):
1. The midpoint of the demand curve.
2. The vertical intercept.
3. The horizontal intercept.
4. A point halfway between the midpoint and the horizontal intercept.

A 2, 1, 4, 3

B 1, 2, 3, 4

C 2, 4, 1, 3

D 3, 4, 1, 2

💡 Short Explanation

Elasticity is highest near the vertical intercept. It equals one at the midpoint. It approaches zero near the horizontal intercept.

✅ Correct Answer Explanation

On a straight-line demand curve: Vertical intercept → Elasticity is infinite. Midpoint → Elasticity equals 1 (unitary). Between midpoint and horizontal intercept → Elasticity is less than 1. Horizontal intercept → Elasticity equals 0. Thus, the decreasing order of elasticity is: Vertical intercept → Midpoint → Point below midpoint → Horizontal intercept Hence, the correct sequence is 2, 1, 4, 3.

❓ Why Other Options Are Incorrect

Option B: Places the midpoint before the most elastic point.
Option C: Incorrectly ranks the intermediate point above the midpoint.
Option D: Starts with the least elastic point.

🎯 Strategy

Used

Sequence

🧠 Memory Trick

Top = ∞ → Middle = 1 → Bottom = 0

📚 Theory of Consumer Behaviour – Geometric Measurement of Elasticity

📄 Passage

"The expenditure on a good is equal to the demand for the good times its price... Now consider a decline in the price of the good. If the percentage increase in quantity is greater than the percentage decline in the price, the expenditure on the good will go up... The expenditure on the good would change in the opposite direction as the price change if and only if the good is price-elastic."

Based on the passage, if the price of an elastic good drops by 10%, the percentage increase in quantity demanded must inherently be:

A Less than 10%

B Exactly 10%

C Greater than 10%

D 0%

💡 Short Explanation

Elastic demand means quantity responds more than price. Price falls by 10%. Quantity must rise by more than 10%.

✅ Correct Answer Explanation

For an elastic good, the percentage change in quantity demanded is greater than the percentage change in price. Therefore, if the price falls by 10%, the quantity demanded must increase by more than 10%, causing total expenditure to rise.

❓ Why Other Options Are Incorrect

Option A: Represents inelastic demand.
Option B: Represents unitary elastic demand.
Option D: Demand always responds to a price change for an elastic good.

🎯 Strategy

Used

Passage-Based

🧠 Memory Trick

Elastic ⇒ Quantity % > Price %

📚 Theory of Consumer Behaviour – Price Elasticity and Total Expenditure

📄 Passage

According to the text, what is the exact impact on total expenditure if the price falls by 10% and the quantity demanded rises by exactly 10%?

A Expenditure goes up

B Expenditure goes down

C Expenditure remains unchanged

D Expenditure becomes zero

💡 Short Explanation

Price falls by 10%. Quantity rises by 10%. This represents unitary elasticity.

✅ Correct Answer Explanation

When the percentage fall in price equals the percentage rise in quantity demanded, the demand is unitary elastic. Under unitary elasticity: The increase in quantity exactly offsets the decrease in price. Therefore, total expenditure remains unchanged.

❓ Why Other Options Are Incorrect

Option A: Occurs when demand is elastic.
Option B: Occurs when demand is inelastic.
Option D: Total expenditure never becomes zero in this situation.

🎯 Strategy

Used

Passage-Based

🧠 Memory Trick

Equal % Change = Same Expenditure

📚 Theory of Consumer Behaviour – Total Expenditure Method of Elasticity

CUET UG Economics Booster Test 2 - Market Demand and Elasticity

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