High-Yield 30 MCQs on Supply & Demand Dynamics for NRB Officer & MA Economics Entrance

A specialized practice set focusing on complex market interactions, elasticity paradoxes, and government policy impacts. This set covers advanced topics such as the Veblen effect, tax incidence, and simultaneous shifts, mirroring the difficulty level of NRB Officer and University entrance exams.

1.      If the demand for a good is price-inelastic, a decrease in the price of the good will result in:

a) An increase in total revenue

b) A decrease in total revenue

c) No change in total revenue

d) Total revenue becomes zero

2.      The "Veblen Effect" suggests that for certain luxury goods, an increase in price leads to:

a) A decrease in quantity demanded

b) An upward-sloping demand curve

c) A horizontal supply curve

d) A leftward shift in the supply curve

3.      In a market, if the supply curve is perfectly elastic, the entire burden of a sales tax will fall on:

a) The seller

b) The consumer

c) Both equally

d) The government

4.      Which of the following results in a "Rightward Shift" of the supply curve for Nepalese tea?

a) An increase in the wages of tea-pickers

b) A decrease in the price of coffee

c) A government subsidy provided to tea farmers

d) An increase in the market price of tea

5.      When both demand and supply decrease, but the decrease in demand is greater than the decrease in supply:

a) Equilibrium price and quantity both rise

b) Equilibrium price and quantity both fall

c) Price falls, but quantity remains unchanged

d) Price rises, but quantity falls

6.      The "Substitution Effect" is always:

a) Positive

b) Negative

c) Zero

d) Infinite

7.      For a "Giffen Good," the negative income effect is:

a) Smaller than the substitution effect

b) Equal to the substitution effect

c) Larger than the substitution effect

d) Non-existent

8.      If the Cross-Price Elasticity (E_xy) between two goods is +1.5, the goods are:

a) Strong complements

b) Weak substitutes

c) Strong substitutes

d) Inferior goods

9.      If a 5% increase in price leads to a 5% increase in total revenue, the price elasticity of demand is:

a) Perfectly elastic

b) Unitary elastic

c) Perfectly inelastic

d) Relatively elastic

10. A "Price Floor" (Minimum Support Price) is effective only if it is set:

a) Below the equilibrium price

b) At the equilibrium price

c) Above the equilibrium price

d) By the central bank

11. The "Bandwagon Effect" causes the market demand curve to be:

a) More elastic

b) More inelastic

c) Vertical

d) Upward sloping

12. In the "Cobweb Model," if the slope of the supply curve is greater than the slope of the demand curve, the equilibrium is:

a) Stable (Convergent)

b) Unstable (Divergent)

c) Constant (Neutral)

d) Indeterminate

13. Which of the following will NOT shift the demand curve for smartphones?

a) A change in consumer tastes

b) A change in the price of data plans

c) A change in the price of smartphones

d) A change in consumer income expectations

14. When the demand curve is a rectangular hyperbola, the elasticity of demand at every point is:

a) 0

b) 0.5

c) 1

d) infinity

15. If the government imposes a price ceiling in a rental housing market, it often leads to:

a) Increased quality of housing

b) A surplus of apartments

c) Black marketing and "key money"

d) Increased construction of new units

16. The demand for a "Necessary Good" (like salt) is typically:

a) Highly elastic

b) Highly inelastic

c) Unitary elastic

d) Perfectly elastic

17. If the production of a good involves "External Diseconomies" (e.g., pollution), the social supply curve lies:

a) Below the private supply curve

b) To the right of the private supply curve

c) Above the private supply curve

d) Exactly on the private supply curve

18. An increase in the price of an input (e.g., fuel) causes:

a) A movement along the supply curve

b) A leftward shift of the supply curve

c) A rightward shift of the demand curve

d) A downward shift of the supply curve

19. If the price of X falls and the demand for Y falls, then X and Y are:

a) Complements

b) Substitutes

c) Normal goods

d) Independent goods

20. Consumer Surplus is largest in the case of:

a) Luxury goods

b) Inferior goods

c) Necessities

d) Giffen goods

21. In the very short run (Market Period), the supply curve for perishable fish is:

a) Horizontal

b) Upward sloping

c) Vertical

d) U-shaped

22. The "Engel Curve" for a luxury good is:

a) Downward sloping

b) Upward sloping and concave

c) Upward sloping and convex

d) Vertical

23. If the demand curve is P = 100 - 2Q, what is the elasticity of demand when P = 20?

a) 0.25

b) 1.5

c) 4.0

d) 0.5

24. A simultaneous increase in demand and supply will lead to an uncertain effect on:

a) Equilibrium quantity

b) Equilibrium price

c) Both price and quantity

d) Neither price nor quantity

25. The slope of a linear demand curve is constant, but the elasticity:

a) Is also constant

b) Decreases as we move down the curve

c) Increases as we move down the curve

d) Is zero at the midpoint

26. Which effect dominates in the "Backward Bending" portion of the labor supply curve?

a) Substitution effect

b) Income effect

c) Price effect

d) Wealth effect

27. A tax on a good with perfectly inelastic demand is paid entirely by:

a) The producer

b) The consumer

c) Both equally

d) The wholesaler

28. Technological progress in the production of wheat will lead to:

a) Higher price and higher quantity

b) Lower price and higher quantity

c) Higher price and lower quantity

d) No change in price

29. The elasticity of supply is greater in the:

a) Short run

b) Long run

c) Market period

d) Immediate run

30. If the supply of a good is fixed (perfectly inelastic), an increase in demand will cause:

a) Only a price increase

b) Only a quantity increase

c) A price decrease

d) Both price and quantity to stay the same

Answer Key with Explanations:

Q.No	Ans	Economic Logic
1	b	For inelastic goods, price and Total Revenue move in the same direction. A price drop decreases revenue.
2	b	Veblen goods are "status symbols"; as price rises, their prestige value increases, raising demand.
3	b	When supply is perfectly elastic, producers can't absorb any cost; the tax is passed 100% to consumers.
4	c	Subsidies reduce the cost of production, incentivizing producers to supply more at every price level.
5	b	Since demand falls more than supply, the "buyer retreat" dominates, pushing both price and quantity down.
6	b	The substitution effect is always negative because consumers always switch away from the relatively dearer good.
7	c	In Giffen goods, the negative income effect is so strong it outweighs the substitution effect, leading to a positive price-demand slope.
8	c	A positive cross-elasticity means goods are substitutes. A high value (+1.5) indicates they are strong substitutes.
9	c	If Total Revenue rises exactly with Price, quantity demanded must be unchanged ($E_d = 0$).
10	c	A price floor must be above equilibrium to be "binding"; otherwise, the market would just stay at equilibrium.
11	a	The bandwagon effect (following a trend) makes consumers more sensitive to price changes, increasing elasticity.
12	a	A steeper supply curve (Ms > Md) ensures that price fluctuations eventually narrow down to equilibrium.
13	c	A change in the price of the good itself causes a movement along the curve, not a shift of the curve.
14	c	A rectangular hyperbola demand curve has P x Q = Constant, meaning total outlay is always the same (Ed = 1).
15	c	Ceilings create shortages; when demand exceeds supply, "black markets" emerge to clear the excess demand.
16	b	Necessities have few substitutes and are essential for survival, so consumers buy them regardless of price hikes.
17	c	Social costs include private costs + external costs. This "internalization" shifts the supply curve upward (left).
18	b	Higher input costs increase production expenses, reducing the quantity sellers are willing to offer (leftward shift).
19	b	If Px  and Dy , consumers are leaving Y to buy the cheaper X, meaning they are substitutes.
20	c	For necessities, consumers are willing to pay very high prices but pay little, resulting in a large surplus area.
21	c	Perishable goods must be sold immediately regardless of price; hence, supply is fixed (vertical).
22	c	For luxuries, as income increases, the proportion of income spent on the good increases at an increasing rate.
23	a	Using point elasticity formula |  x |. At P=20, Q=40. Elasticity = | -0.5 x 0.5|.
24	b	Both increases push quantity up, but D  pushes price up while S  pushes price down, making price effect uncertain.
25	b	On a linear curve, elasticity is higher at the top (high P, low Q) and lower at the bottom (low P, high Q).
26	b	At high wages, the desire for leisure (income effect) becomes stronger than the desire to work more (substitution effect).
27	b	If demand is perfectly inelastic, consumers will pay any price to get the good, so they bear the full tax.
28	b	Technology shifts supply right, leading to a "surplus" that forces prices down and quantity up.
29	b	In the long run, all factors of production are variable, allowing firms to respond more flexibly to price changes.
30	a	Since quantity cannot increase (fixed supply), the entire increase in demand is reflected in a higher price.