Principles of Economics (POE)
PRC-03
SKANS Time Allowed: 0.5 Hour
School of Accountancy Total Marks: 44
NAME : ____________ Term Test (Ch:2) SKANS ID :_____________
1. Extension and contraction of demand are the result of
a. Change in consumer’s c. Change in price
income d. None of the above
b. Change in consumer’s taste
2. Contraction in Demand occurs when
a. Price increases and quantity demanded decreases
b. Price increases and quantity demanded also increases
c. Price remains constant and quantity demanded falls down
d. Price falls down and quantity demanded remains constant
3. The price ceiling on a good:
a. Creates shortage of the good c. Reduces Consumer’s surplus
b. Creates surplus of the good d. Increase Producer’s surplus
4. Suppose the demand for good Z goes up when the price of good Y goes down. We can say
that goods Z and Y are
a. Perfect substitutes c. Complements
b. Unrelated goods d. Substitutes
5. The supply curve would shift to the left when:
a. Price of good goes down
b. Taxes of government go down
c. Prices of complements go down
d. Prices of substitute goods go down
6. Demand curve slopes downwards because of:
a. Consumer indifference d. Law of diminishing marginal
b. Elasticity of demand utility
c. Inelastic demand
7. A rise in household income is likely to result in a leftward shift in demand for inferior goods
a. True b. False
8. Consumer surplus is:
a. The excess between what consumers are prepared to pay for a good or service, and
the prevailing market price
b. The indirect tax producers pay on a good or service
c. The marginal utility gained by consuming one more unit of a good or service
d. The indirect tax consumers pay on a good or service
9. What will happen to a firm's supply curve if government introduces a subsidy for the good the
firm produces?
a. Supply curve shift to left c. Demand curve shift to left
b. Supply curve shift to right d. Demand curve shift to right
10. If the demand equation for a good is Qd = 20 – P and the supply equation is
Qs = 6 + 1.5 P and the price is set equal to 2.4 above the equilibrium level, there will
be an excess:
a. Demand of 6 units c. Demand of 12 units
b. Supply of 6 units d. Supply of 18 units
11. If the price of a commodity increases it usually means that
a. Prices of all other goods will also rise
b. Prices of other commodities will fall
c. Demand for the commodity will rise
d. Demand for the commodity will fall
12. Which one of the following assumptions does NOT confer to the law of demand?
(a) There is no change in the income of consumers
(b) There is no substitute for the good
(c) The prices of related goods are unstable
(d) The size of population is stable
13. A price floor set above the market equilibrium price is likely to cause:
(a) Excess supply
(b) Excess demand
(c) A decrease in price and a decrease in the quantity traded
(d) An increase in price and an increase in the quantity traded
14. Which one of the following will NOT shift the demand curve for a normal good to the
left?
(a) A fall in consumer’s incomes
(b) A rise in the price of a complementary good
(c) A fall in the price of the substitute good
(d) A rise in the price of the normal good
15. Which of the following is likely to lead to a fall in the price of good Q?
a) A rise in the price of good P, a substitute for good Q
b) A fall in the level of household incomes generally
c) A fall in the price of good T, a complement to good Q
d) A belief that the price of good Q is likely to double in the next 3 months
16) Which one of the following would normally cause a rightward shift in the demand curve for a
product?
a) A fall in the price of a substitute product
b) A reduction in direct taxation on incomes
c) A reduction in price of the product
d) An increase in the price of a complementary produce
17) If the price of coffee falls, which one of the following outcomes would be expected to occur?
a) A fall in the quantity of coffee demanded
b) A rise in the price of tea
c) A fall in the demand for drinking cups
d) A fall in the demand for tea
18) Which of the following goods have demand curves that do not slope downwards from left to
right?
a) Giffen good
b) Display good on outlet
c) A good for which demand is perfectly inelastic
d) All of the above
19) An inferior good is a good for which demand:
a) Is highly elastic
b) Is dependent on fashion
c) Falls as income rises
d) Falls as the price of substitutes falls
20) Which of the following would cause a reduction in the demand for motor cars?
o A fall in the price of petrol
o A substantial reduction in train fares
o A large fall in the cost of motor cycle road tax licenses
o None of these
21) Advertising campaign by firms in the industry and an increase in wages to workers in
industry, the price and quantity consumed of a particular product changes:
a) A movement along the demand curve and a shift in the supply curve
b) A shift in the demand curve and a shift in the supply curve
c) A movement along the demand curve and a movement along the supply curve
d) A shift in the demand curve and a movement along the supply curve
22. A price ceiling causes
a) Increase in producer surplus
b) Decrease in producer surplus
c) Increase in consumer surplus
d) Decrease in consumer surplus
