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Practice Questions

MIT is located in Manipal. Currently, a student apartment rents for INR


5,000 a month in Manipal and 6000 apartments are rented. MIT is
considering expanding enrolment by lowering its current academic
standards. A local economist estimates that at the current P and Q, the
PED for apartments is -0.25 and the PES is 0.5. Answer the following
questions:
a. What are the equations of demand and supply?
b. Suppose there is a 20 percent increase in the demand for
apartments as a result for increase in intake at MIT. What would be
the new equilibrium P and Q? Compute PED at new equilibrium
point.
P B

20
A

100 Q
In the figure above, which comparison of the PED on demand curves A and
B is correct?
a. At P = 20 and Q = 100, demand is more elastic on curve A than curve B.
b. At P = 20 and Q = 100, demand is less elastic on curve A than curve B.
c. At P = 20 and Q = 100, PED is same for both the curves.
d. More information is required.

9/18/2019
The curve below shows the market demand curve for apples in India. If OP1 is the
original equilibrium price, a decrease in price to OP2 could have been caused by a
decrease in:

a. The wage of apple pickers in Himachal Pradesh


b. Real income in India
c. The price of substitutes like pomegranate and oranges.
d. The popularity of apples
Price

P1

P2

9/18/2019
O DEMAND CURVE Quantity
Suppose that a market basket of two goods is changed by adding
more of one of the goods and subtracting one unit of the other.
The consumer will:

A) rank the market basket more highly after the change.


B) rank the market basket more highly before the change.
C) rank the market basket just as desirable as before.
D) any one of the above statements may be true.
Which of the following is true about the indifference curve
where one commodity (such as pollution) is "bad"?

A) It has a negative slope.


B) It has a positive slope.
C) It is horizontal.
D) It is vertical.
As an individual moves northwest along his or her indifference curve
substituting more and more Y for X, his or her MRS of X for Y

a. Increases
b. Decreases
c. Stays the same
d. Changes in a way that cannot be determined
Q) If a consumer is always indifferent between an additional
one grapefruit or an additional two oranges, then when
oranges are on the horizontal axis the indifference curves:

A) will be straight lines with a slope of -1/2.


B) will be straight lines with a slope of -1.
C) will be straight lines with a slope of +1/2.
D) will be right angles whose corners occur on a ray from the
origin with a slope of +2.
E) none of the above
In the figure below, a pair of demand curve is given with particular points indicated on each curve. Which of
the following statements is correct?

a. PED at A is higher than the PED at B


b. PED at A is lower than the PED at B
c. PED at A is equal to the PED at B
d. Information inadequate