Class 10 Theory of Demand and Supply Mock Test (ICSE)

Topics in Theory of Demand and Supply

• Law of demand and demand schedule
• Determinants of demand
• Elasticity of demand and its types
• Law of supply and supply curve
• Determinants and elasticity of supply

Theory of Demand and Supply practice questions with answers

1. Q1Multiple choice·1 mark
   Which of the following commodities is likely to have a highly inelastic demand?

   1. (a)Air conditioners
   2. (b)Designer clothing
   3. (c)Luxury cars
   4. (d)Life-saving medicines
   Show answer and step marks

   1. Correct option: (d) Life-saving medicines.+1

   Answer: (d)
2. Q2Multiple choice·1 mark
   Which of the following best describes the slope of a normal supply curve?

   1. (a)Downward sloping from left to right
   2. (b)Upward sloping from left to right
   3. (c)Horizontal parallel to the X-axis
   4. (d)Vertical parallel to the Y-axis
   Show answer and step marks

   1. Correct option: (b) Upward sloping from left to right.+1

   Answer: (b)
3. Q3Multiple choice·1 mark
   If an increase in the price of a commodity causes a proportionately smaller change in its quantity supplied, the supply is:

   1. (a)Relatively elastic
   2. (b)Relatively inelastic
   3. (c)Unitary elastic
   4. (d)Perfectly elastic
   Show answer and step marks

   1. Correct option: (b) Relatively inelastic.+1

   Answer: (b)
4. Q4Short answer·2 marks
   State any two determinants of demand other than the price of the commodity, and briefly explain how each affects the demand.
   Show answer and step marks

   1. First determinant, any one of: income of the consumer; price of substitute goods; price of complementary goods; tastes and preferences; size of population (number of buyers); expectation of a future change in price; distribution of income; or any other valid determinant other than the commodity's own price.+0.5
   2. Correct effect of the first determinant, e.g. a rise in income raises demand for a normal good (lowers it for an inferior good); a rise in the price of a substitute raises demand; a rise in the price of a complement lowers demand; a favourable change in tastes raises demand; a larger population raises demand; an expected price rise raises present demand.+0.5
   3. Second determinant, a different one from the same list.+0.5
   4. Correct effect of the second determinant.+0.5

   Answer: Any two of: income (a rise raises demand for normal goods), price of a substitute (a rise raises demand), price of a complement (a rise lowers demand), tastes and preferences (a favourable change raises demand), population (more buyers raise demand), expected future price (an expected rise raises present demand).
5. Q5Long answer·4 marks
   State the formula for measuring price elasticity of demand using the percentage method. Given that the price of a commodity falls from ₹ $20$ per unit to ₹ $16$ per unit, and its quantity demanded increases from $100$ units to $120$ units, calculate the price elasticity of demand and identify its type.
   Show answer and step marks

   1. State the formula for price elasticity of demand: $e_d = - \frac{\% \text{ change in quantity demanded}}{\% \text{ change in price}} = - \frac{\Delta Q}{Q} \times \frac{P}{\Delta P}$+1
   2. Calculate percentage change in quantity demanded: $\frac{120 - 100}{100} \times 100 = +20\%$+1
   3. Calculate percentage change in price: $\frac{16 - 20}{20} \times 100 = -20\%$+1
   4. Substitute values to find $e_d = - \left(\frac{20}{-20}\right) = 1$ and state the type as unitary elastic demand.+1

   Answer: Formula: $e_d = -\frac{\%\text{ change in quantity demanded}}{\%\text{ change in price}}$. Quantity rises by $20\%$ and price falls by $20\%$, so $e_d = 1$: unitary elastic demand.
6. Q6Long answer·4 marks
   (a) Define price elasticity of demand. Explain briefly any two degrees of price elasticity of demand. [2] (b) When the price of a commodity rises from ₹ $20$ per unit to ₹ $25$ per unit, its demand falls from $100$ units to $80$ units. Calculate the price elasticity of demand using the percentage method and state the nature of elasticity. [2]
   Show answer and step marks

   1. (a) Definition: Price elasticity of demand refers to the degree of responsiveness of quantity demanded of a commodity to a change in its price.+1
   2. (a) First degree, explained, one of the five degrees: perfectly elastic demand ($E_d = \infty$, demand changes infinitely with no change in price); perfectly inelastic demand ($E_d = 0$, demand does not change with price); unitary elastic demand ($E_d = 1$, percentage change in demand equals percentage change in price); relatively elastic demand ($E_d > 1$, percentage change in demand is greater); relatively inelastic demand ($E_d < 1$, percentage change in demand is smaller).+0.5
   3. (a) Second degree, a different one from the same list.+0.5
   4. (b) Formula application: $E_d = \frac{\text{Percentage change in quantity demanded}}{\text{Percentage change in price}} = \frac{\Delta Q}{Q_1} \times \frac{P_1}{\Delta P}$. Here, $\Delta Q = -20$, $Q_1 = 100$, $\Delta P = 5$, $P_1 = 20$.+1
   5. (b) Computation: percentage change in demand $= -20\%$, percentage change in price $= +25\%$, so $E_d = \frac{-20}{25} = -0.8$ (magnitude $0.8$).+0.5
   6. (b) Nature: relatively inelastic demand, since $|E_d| < 1$.+0.5

   Answer: (a) Price elasticity of demand is the degree of responsiveness of quantity demanded to a change in price; any two of: perfectly elastic ($\infty$), perfectly inelastic ($0$), unitary elastic ($1$), relatively elastic ($>1$), relatively inelastic ($<1$). (b) $E_d = -0.8$ (magnitude $0.8$); demand is relatively inelastic.

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