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Maharashtra HSC Economics study materials
Maharashtra HSC Economics study resources

Maharashtra HSC Economics practice questions

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Question 1Introduction to Microeconomics and Basic Concepts

In economics, the central problem of scarcity arises because:

  1. Money supply in an economy is always fixed
  2. Human wants are limited while resources are unlimited
  3. Production is always carried out by the government
  4. Resources are limited relative to unlimited human wants Correct answer.

Explanation

Scarcity means that the means of production and goods available are limited in supply compared with the unlimited wants of people. Because resources are finite and wants are infinite, every economy must choose what to produce, how to produce and for whom to produce. Money supply or government ownership does not define the concept.

Question 2Introduction to Microeconomics and Basic Concepts

The branch of economics that studies individual units such as a single consumer, a single firm or a single market is called:

  1. Microeconomics Correct answer.
  2. Development economics
  3. Public finance
  4. Macroeconomics

Explanation

Microeconomics deals with the behaviour of individual decision-making units, such as one household, one firm or one market for a good. It examines price determination and resource allocation at that small scale. Macroeconomics instead studies aggregates such as national income and general price level.

Question 3Introduction to Microeconomics and Basic Concepts

Opportunity cost of choosing an activity is best described as:

  1. The cost that does not change with output
  2. The total cost of all alternatives available
  3. The value of the next best alternative forgone Correct answer.
  4. The money actually paid for that activity

Explanation

Opportunity cost is the value of the next best alternative that is sacrificed when a choice is made. It exists because resources are scarce and can be used in more than one way. It is measured by the best forgone option, not by money paid or by the sum of every alternative.

Question 4Introduction to Microeconomics and Basic Concepts

A production possibility curve that is concave to the origin reflects:

  1. Increasing opportunity cost as more of one good is produced Correct answer.
  2. Constant opportunity cost of producing either good
  3. Falling total output as production rises
  4. Zero opportunity cost of production

Explanation

When the production possibility curve bows outward, successively larger sacrifices of one good are needed to release resources for extra units of the other. This shows increasing opportunity cost, which follows from resources not being equally suited to both uses. A straight-line curve would show constant opportunity cost.

Question 5Introduction to Microeconomics and Basic Concepts

A point lying inside the production possibility curve indicates that the economy is:

  1. Producing beyond its capacity
  2. Producing at full and efficient use of resources
  3. Using its resources inefficiently or underemployed Correct answer.
  4. Facing constant opportunity cost

Explanation

Any point inside the curve means the economy could produce more of one good without giving up any of the other, so resources are idle or inefficiently used. Points on the curve represent full and efficient use, and points outside are unattainable with current resources and technology. The shape of the curve, not the interior point, reflects opportunity cost.

Question 6Introduction to Microeconomics and Basic Concepts

Which statement correctly distinguishes a want from a need in economic analysis?

  1. A want is a desire for a good or service that may or may not be essential for survival Correct answer.
  2. Only wants are studied in microeconomics and needs are ignored
  3. A need is always satisfied before any want arises
  4. Needs are unlimited while wants are limited

Explanation

A need refers to something essential for survival or basic well-being, while a want is a desire for a good or service that is not necessarily essential. Economics studies how both are satisfied with scarce resources, and wants are treated as unlimited. Needs and wants are not distinguished by any rule that needs are always met first.

Question 7Introduction to Microeconomics and Basic Concepts

Utility in economics refers to:

  1. The money value of a good in the market
  2. The total output produced by a firm
  3. The satisfaction a consumer derives from consuming a good or service Correct answer.
  4. The usefulness of a good as judged by engineers

Explanation

Utility is the want-satisfying power of a commodity, that is, the satisfaction a consumer obtains from consuming it. It is subjective and varies between individuals, so it is not the same as physical usefulness or market price. A good can have high utility for one person and little for another.

Question 8Introduction to Microeconomics and Basic Concepts

The law of diminishing marginal utility states that as a consumer consumes more units of a good in a given period:

  1. Marginal utility becomes negative from the first unit
  2. Marginal utility from each additional unit eventually falls Correct answer.
  3. Total utility always rises at an increasing rate
  4. Total utility falls from the first unit onwards

Explanation

The law states that as consumption of a good increases in a given time period, the satisfaction from each successive unit tends to decline. Total utility may still rise while marginal utility is positive but falling. Marginal utility only becomes negative after the point of satiety.

Question 9Introduction to Microeconomics and Basic Concepts

A consumer obtains total utility of 50 units from 4 units of a good and 58 units from 5 units. The marginal utility of the fifth unit is:

  1. 11.6 units
  2. 108 units
  3. 8 units Correct answer.
  4. 58 units

Explanation

Marginal utility is the change in total utility resulting from consuming one more unit, so it equals 58 minus 50, which is 8 units. It is not the total utility after five units, nor an average. Average utility would be total utility divided by the number of units.

Question 10Introduction to Microeconomics and Basic Concepts

A consumer maximises satisfaction from spending a fixed income on two goods when:

  1. Total utility from both goods is equal
  2. The price of both goods is equal
  3. Marginal utility per rupee spent is equal for both goods Correct answer.
  4. The cheaper good is bought in larger quantity

Explanation

The condition for consumer equilibrium is that the marginal utility of the last rupee spent on each good is the same. If one good gave more utility per rupee, the consumer could raise satisfaction by shifting spending towards it. Equality of prices or of total utilities does not ensure this balance.

Question 11Introduction to Microeconomics and Basic Concepts

An indifference curve shows:

  1. The relationship between price and quantity demanded
  2. Combinations of two goods that cost the consumer the same amount
  3. The maximum output a firm can produce
  4. Combinations of two goods that give the consumer equal satisfaction Correct answer.

Explanation

An indifference curve plots all combinations of two goods among which the consumer is indifferent because each yields the same total satisfaction. Higher curves represent higher satisfaction, and the curves slope downward and do not intersect. Cost and output relationships belong to other tools such as the budget line and production function.

Question 12Introduction to Microeconomics and Basic Concepts

The slope of a budget line faced by a consumer is determined by:

  1. The total utility obtained from the goods
  2. The consumer's income alone
  3. The consumer's tastes and preferences
  4. The ratio of the prices of the two goods Correct answer.

Explanation

The budget line shows combinations of two goods a consumer can buy with a given income, and its slope equals the ratio of their prices. Income determines how far the line lies from the origin, not its slope. Tastes and utility affect the choice of point on the line, not the line's slope.

Question 13Introduction to Microeconomics and Basic Concepts

In the law of demand, the inverse relationship between price and quantity demanded holds when:

  1. The good is a status symbol consumed for display
  2. Income and tastes change along with price
  3. All other determinants of demand such as income and tastes remain constant Correct answer.
  4. Expectations of future prices are ignored entirely

Explanation

The law of demand states that, other things being equal, quantity demanded rises when price falls and falls when price rises. The ceteris paribus assumption is essential, because changes in income, tastes or expectations can shift demand and obscure the price effect. Exceptions such as status goods are recognised but are not the general rule.

Question 14Introduction to Microeconomics and Basic Concepts

A movement along a demand curve for a good is caused by a change in:

  1. Consumer preferences
  2. The price of the good itself Correct answer.
  3. Consumer income
  4. The price of a substitute good

Explanation

A change in the good's own price changes quantity demanded and is shown as a movement along the existing demand curve. Changes in income, prices of related goods or tastes shift the whole demand curve to a new position. Keeping these two kinds of change distinct is central to demand analysis.

Question 15Introduction to Microeconomics and Basic Concepts

If the price of tea rises and, other things being equal, the demand for coffee increases, then tea and coffee are:

  1. Inferior goods
  2. Independent goods
  3. Complementary goods
  4. Substitute goods Correct answer.

Explanation

Goods are substitutes when a rise in the price of one increases demand for the other, because consumers switch towards the relatively cheaper alternative. Tea and coffee serve similar purposes, so this pattern is expected. Complementary goods would show the opposite relationship.

Question 16Introduction to Microeconomics and Basic Concepts

A good whose demand falls when consumer income rises is called:

  1. A complementary good
  2. A luxury good
  3. A normal good
  4. An inferior good Correct answer.

Explanation

An inferior good is one for which demand moves inversely with income, because consumers switch to better alternatives as they become richer. Normal goods show demand rising with income, and luxuries are a subset of normal goods with a strong income response. Complementarity concerns the relationship with another good's price.

Question 17Introduction to Microeconomics and Basic Concepts

A vertical supply curve indicates that supply is:

  1. Perfectly inelastic Correct answer.
  2. Perfectly elastic
  3. Unit elastic
  4. Negatively sloped

Explanation

A vertical supply curve means quantity supplied does not change whatever the price, so price elasticity of supply is zero and supply is perfectly inelastic. A horizontal supply curve represents perfectly elastic supply. Unit elastic supply would pass through the origin in a linear case.

Question 18Introduction to Microeconomics and Basic Concepts

When the price of a good falls from 10 to 8 rupees and quantity demanded rises from 100 to 140 units, the price elasticity of demand calculated by the percentage method is approximately:

  1. 1.0
  2. 4.0
  3. 0.5
  4. 2.0 Correct answer.

Explanation

Percentage change in quantity is 40 divided by 100, or 40 per cent, and percentage change in price is 2 divided by 10, or 20 per cent. Dividing the quantity change by the price change gives an elasticity of 2, which is elastic. The value exceeds one because the quantity response is proportionately larger than the price change.

Question 19Introduction to Microeconomics and Basic Concepts

For a producer facing a price-elastic demand curve, a small reduction in price will:

  1. Have no effect on quantity sold
  2. Reduce total revenue because the price fall dominates
  3. Raise total revenue because the quantity increase outweighs the price fall Correct answer.
  4. Leave total revenue unchanged

Explanation

When demand is elastic, the proportionate rise in quantity sold exceeds the proportionate fall in price, so total revenue increases. This is why sellers of elastic goods often gain from price cuts. If demand were inelastic, the same price cut would reduce revenue.

Question 20Introduction to Microeconomics and Basic Concepts

Which pair of goods is most likely to be complementary in consumption?

  1. Tea and coffee
  2. Rice and wheat
  3. Butter and margarine
  4. Cars and petrol Correct answer.

Explanation

Complementary goods are used together, so a rise in the price of one reduces demand for the other; cars and petrol fit this pattern because cars need fuel to run. The other pairs are alternative ways of satisfying a similar want and are therefore substitutes. Cross-price elasticity is negative for complements and positive for substitutes.

Question 21Utility Analysis and Consumer Behaviour

In utility analysis, the total satisfaction a consumer derives from consuming a given quantity of a commodity is called:

  1. Total utility Correct answer.
  2. Marginal utility
  3. Average utility
  4. Ordinal utility

Explanation

Total utility is the sum of satisfaction obtained from all units consumed of a commodity. Marginal utility is the addition to total utility from one more unit, while average utility is total utility divided by units consumed. Ordinal utility refers to ranking of preferences rather than a measurable amount of satisfaction.

Question 22Utility Analysis and Consumer Behaviour

The law of diminishing marginal utility states that as a consumer consumes more units of a commodity in a given period, the marginal utility of each successive unit:

  1. Remains constant
  2. Rises steadily
  3. Falls Correct answer.
  4. First falls and then becomes constant

Explanation

The law states that as consumption of a commodity increases within a given time period, the additional satisfaction from each extra unit tends to decline. This happens because the intensity of a particular want falls as it is progressively satisfied. Hence marginal utility falls with successive units.

Question 23Utility Analysis and Consumer Behaviour

A consumer is in equilibrium when consuming a single commodity if:

  1. Marginal utility is zero
  2. Average utility equals price
  3. Marginal utility equals price Correct answer.
  4. Total utility equals price

Explanation

For a single commodity, the consumer maximises satisfaction where marginal utility of the commodity equals its price, assuming utility is measured in money. If marginal utility exceeds price, buying more adds to satisfaction; if it is below price, buying less is better. Equilibrium therefore occurs at marginal utility equal to price.

Question 24Utility Analysis and Consumer Behaviour

Utility that can be measured in numerical units such as utils is described as:

  1. Revealed utility
  2. Cardinal utility Correct answer.
  3. Ordinal utility
  4. Indifference utility

Explanation

Cardinal utility assumes satisfaction can be measured in numbers, allowing comparison of magnitudes between goods and consumers. This approach underlies Marshallian utility analysis. Ordinal utility only ranks preferences without assigning measurable values.

Question 25Utility Analysis and Consumer Behaviour

The additional satisfaction obtained from consuming one more unit of a commodity is known as:

  1. Marginal utility Correct answer.
  2. Total utility
  3. Utility schedule
  4. Average utility

Explanation

Marginal utility is the change in total utility resulting from a one-unit increase in consumption. It is the extra satisfaction from the last unit consumed. Total utility is the cumulative satisfaction, and average utility is the per-unit average.

Question 26Utility Analysis and Consumer Behaviour

When total utility is at its maximum, marginal utility is:

  1. Zero Correct answer.
  2. Equal to total utility
  3. Positive and rising
  4. Negative

Explanation

Total utility increases as long as marginal utility is positive and stops rising when marginal utility becomes zero. At the peak of total utility, the addition from the last unit is nil, so marginal utility is zero. Beyond that point marginal utility turns negative and total utility falls.

Question 27Utility Analysis and Consumer Behaviour

An indifference curve shows all combinations of two goods that give the consumer:

  1. Equal total utility Correct answer.
  2. Equal prices
  3. Equal marginal utility
  4. Maximum total utility

Explanation

An indifference curve is the locus of commodity bundles that yield the same level of satisfaction, so the consumer is indifferent among them. Each point on the curve therefore represents equal total utility. Marginal utility differs between points, and prices are not part of the curve.

Question 28Utility Analysis and Consumer Behaviour

A consumer with a monthly income of ₹1,000 buys only two goods, X priced at ₹20 and Y priced at ₹50. The slope of the budget line (units of Y per unit of X) is:

  1. 0.4 Correct answer.
  2. 2.5
  3. 0.5
  4. 20

Explanation

The budget line equation is 20X + 50Y = 1000, so Y = 20 − 0.4X. The slope with respect to X is therefore −0.4, meaning one more unit of X requires giving up 0.4 units of Y. The price ratio PX/PY equals 20/50 = 0.4.

Question 29Utility Analysis and Consumer Behaviour

A consumer's marginal utility from a commodity is 60 utils and its price is ₹10. If utility is measured in money terms, the marginal utility of money is:

  1. 60
  2. 10
  3. 600
  4. 6 Correct answer.

Explanation

In equilibrium MU = P × MUm, so MUm = MU ÷ P = 60 ÷ 10 = 6. This means each rupee of expenditure yields 6 utils of satisfaction at the margin. The consumer compares this value across goods to allocate income.

Question 30Utility Analysis and Consumer Behaviour

For two goods X and Y, the consumer is in equilibrium under the equi-marginal principle when:

  1. Px = Py
  2. MUx/Px = MUy/Py Correct answer.
  3. MUx = MUy
  4. TUx = TUy

Explanation

The equi-marginal principle states that a consumer maximises utility when the marginal utility per rupee spent is equal across all goods. Hence MUx/Px must equal MUy/Py, subject to the budget constraint. If the ratios differ, reallocating expenditure towards the higher ratio raises total utility.

Question 31Utility Analysis and Consumer Behaviour

The marginal rate of substitution of X for Y (MRSxy) measures:

  1. The units of X a consumer gives up for one more unit of Y at constant prices
  2. The units of Y a consumer gives up for one more unit of X while staying on the same indifference curve Correct answer.
  3. The ratio of the prices of the two goods
  4. The total utility of the bundle

Explanation

MRSxy is the quantity of Y that the consumer is willing to sacrifice to obtain one additional unit of X while remaining equally satisfied. It equals the absolute slope of the indifference curve and diminishes as X increases. The price ratio belongs to the budget line, not to the indifference curve.

Question 32Utility Analysis and Consumer Behaviour

A consumer moves along a convex indifference curve from left to right, increasing units of X. The marginal rate of substitution of X for Y:

  1. Remains constant
  2. Rises
  3. Falls Correct answer.
  4. Becomes negative in absolute value

Explanation

Indifference curves are convex to the origin because MRS diminishes as more of X is substituted for Y. As X becomes relatively abundant, the consumer is willing to give up fewer units of Y for one more X. This diminishing MRS reflects the law of diminishing marginal utility in ordinal terms.

Question 33Utility Analysis and Consumer Behaviour

A consumer's budget line shifts outward parallel to the original line when:

  1. The price of one good falls
  2. Preferences change in favour of one good
  3. Money income rises with prices unchanged Correct answer.
  4. Both prices rise in the same proportion as income

Explanation

A parallel outward shift of the budget line occurs when money income increases while both prices stay constant, raising the purchasing power equally for both goods. The slope, which depends on the price ratio, is unchanged. A change in relative prices would rotate the line instead.

Question 34Utility Analysis and Consumer Behaviour

The point of consumer equilibrium under the indifference curve approach is where:

  1. The budget line is tangent to the highest attainable indifference curve Correct answer.
  2. The budget line intersects an indifference curve at two points
  3. Two indifference curves cross each other
  4. The indifference curve lies above the budget line

Explanation

Equilibrium occurs where the budget line touches the highest reachable indifference curve, that is, at a point of tangency. At this point MRSxy equals Px/Py, so the consumer's willingness to substitute matches the market rate. Points above the budget line are unaffordable.

Question 35Utility Analysis and Consumer Behaviour

A consumer's total utility schedule is: 1 unit = 20, 2 units = 36, 3 units = 46, 4 units = 52. The marginal utility of the third unit is:

  1. 46
  2. 10 Correct answer.
  3. 6
  4. 16

Explanation

Marginal utility is the change in total utility between successive units. For the third unit it is 46 − 36 = 10. This is the additional satisfaction gained from moving from two units to three units.

Question 36Utility Analysis and Consumer Behaviour

If a consumer's marginal utility from the last rupee spent on good X is 8 and on good Y is 5, the consumer can increase total utility by:

  1. Buying more X and less Y Correct answer.
  2. Buying less of both goods
  3. Buying more Y and less X
  4. Keeping expenditure unchanged

Explanation

Utility is maximised when marginal utility per rupee is equal across goods. Since X gives 8 utils per rupee against 5 for Y, shifting expenditure from Y to X raises total satisfaction. As more X is bought its marginal utility per rupee falls until the two are equal.

Question 37Utility Analysis and Consumer Behaviour

The assumption that a consumer is consistent in ranking bundles, so that if A is preferred to B then B cannot be preferred to A, is known as:

  1. Continuity
  2. Completeness
  3. Transitivity Correct answer.
  4. Monotonicity

Explanation

Transitivity requires that preferences be consistent across comparisons, ruling out cycles such as A preferred to B and B preferred to A. Completeness ensures any two bundles can be compared, while monotonicity says more is preferred to less. These axioms together give well-behaved indifference curves.

Question 38Utility Analysis and Consumer Behaviour

For two goods, the budget line equation is 5X + 10Y = 200. If the consumer spends the entire income on X, the maximum quantity of X is:

  1. 20
  2. 200
  3. 40 Correct answer.
  4. 10

Explanation

Setting Y = 0 in the budget equation gives 5X = 200, so X = 40. This is the horizontal intercept of the budget line, showing the maximum X affordable if nothing is spent on Y. The intercept on the Y-axis would be 20 units.

Question 39Utility Analysis and Consumer Behaviour

A consumer's marginal utility from a commodity is 40 utils, its price is ₹8, and the marginal utility of money is 4 utils per rupee. The consumer should:

  1. Stay at the present quantity
  2. Buy less of the commodity
  3. Buy more of the commodity Correct answer.
  4. Stop consuming the commodity

Explanation

Equilibrium requires MU = P × MUm, that is 8 × 4 = 32 utils. Since the actual marginal utility of 40 exceeds 32, each extra rupee spent yields more than the required satisfaction, so buying more raises total utility. Consumption should rise until marginal utility falls to 32.

Question 40Utility Analysis and Consumer Behaviour

Two indifference curves cannot intersect because an intersection point would imply that:

  1. The marginal rate of substitution is constant
  2. The same bundle yields two different levels of satisfaction Correct answer.
  3. The goods are perfect substitutes
  4. The consumer has unlimited income

Explanation

Each indifference curve represents a distinct level of satisfaction. If two curves crossed, the intersection bundle would lie on both and thus yield two different satisfaction levels, which is impossible. Transitivity of preferences rules out such crossing.

Question 41Utility Analysis and Consumer Behaviour

A consumer spends his entire income on X and Y. At his chosen bundle, MRSxy = 2 while Px/Py = 3. To raise total utility, the consumer should:

  1. Buy more X and less Y
  2. Buy more Y and less X Correct answer.
  3. Buy more of both goods
  4. Keep the bundle unchanged

Explanation

At equilibrium MRSxy must equal Px/Py. Here the consumer is willing to give up only 2 units of Y for one more X, but the market requires 3 units of Y, so X is relatively expensive. Substituting Y for X raises satisfaction until the two ratios are equal.

Question 42Utility Analysis and Consumer Behaviour

A consumer's total utility from a commodity is 50 at 4 units and 54 at 5 units. The price of the commodity is ₹5 and the marginal utility of money is 1 util per rupee. To maximise utility, the consumer should:

  1. Consume the fifth unit, since total utility rises
  2. Stop at four units, since the fifth unit adds less utility than its price in utility terms Correct answer.
  3. Consume the fifth unit, since marginal utility exceeds price in utility terms
  4. Stop at four units, since total utility is still rising

Explanation

The marginal utility of the fifth unit is 54 − 50 = 4 utils, which is worth ₹4 at MUm = 1. Since the price is ₹5, the unit costs more in utility terms than it yields, so the consumer should not buy it. Total utility rising is not sufficient; the comparison must be at the margin.

Question 43Utility Analysis and Consumer Behaviour

For a consumer buying two goods, the second-order condition for a maximum under the equi-marginal principle requires that:

  1. The marginal utility of money be zero
  2. Marginal utility of each good be rising
  3. Total utility of each good be constant
  4. Marginal utility of each good be falling Correct answer.

Explanation

The first-order condition MUx/Px = MUy/Py locates a stationary point, but a maximum requires diminishing marginal utility for each good. If marginal utility were rising, reallocating expenditure would keep increasing satisfaction. Falling marginal utility ensures the equality identifies a true maximum.

Question 44Utility Analysis and Consumer Behaviour

A consumer's utility function is U = X·Y. At the bundle X = 4, Y = 9, the marginal rate of substitution of X for Y is:

  1. 9
  2. 2.25 Correct answer.
  3. 0.44
  4. 4

Explanation

For U = XY, MUx = Y and MUy = X, so MRSxy = MUx/MUy = Y/X = 9/4 = 2.25. The consumer is willing to give up 2.25 units of Y for one more unit of X at this bundle. The MRS falls as X increases along the curve.

Question 45Demand, Supply and Elasticity

In the law of demand, what is the relationship between the price of a commodity and the quantity demanded of it, other things remaining constant?

  1. Inverse relationship Correct answer.
  2. Direct relationship
  3. No relationship
  4. Relationship that changes randomly

Explanation

The law of demand states that other factors being equal, quantity demanded moves in the opposite direction to price. When price rises, quantity demanded falls, and when price falls, quantity demanded rises. This inverse relation is shown by a downward-sloping demand curve.

Question 46Demand, Supply and Elasticity

A consumer buys 10 units of a good at ₹5 per unit. When the price falls to ₹4, she buys 14 units. Using the total outlay method, how is the elasticity of demand classified?

  1. Inelastic
  2. Elastic Correct answer.
  3. Unitary elastic
  4. Perfectly inelastic

Explanation

Total outlay at ₹5 is 10 × 5 = ₹50, and at ₹4 it is 14 × 4 = ₹56. Since expenditure rises when price falls, demand is elastic. With elastic demand, a price fall increases total expenditure.

Question 47Demand, Supply and Elasticity

Which factor causes the demand curve for a good to shift to the right?

  1. An increase in consumers' income, the good being normal Correct answer.
  2. A rise in the price of a complementary good
  3. An increase in the price of the good
  4. A fall in the price of the good

Explanation

A rise in income raises the purchasing power of consumers, so at every price they demand more of a normal good, shifting its demand curve rightward. A change in the good's own price only moves the consumer along the existing curve.

Question 48Demand, Supply and Elasticity

A movement along a given demand curve from a higher price point to a lower price point is described as:

  1. an extension of demand Correct answer.
  2. a shift in demand
  3. an increase in demand
  4. a decrease in demand

Explanation

When only the good's own price falls, quantity demanded rises along the same curve. This is called an extension of demand. Changes in other determinants shift the whole curve instead.

Question 49Demand, Supply and Elasticity

The price of tea rises sharply. What is the most likely effect on the demand curve for coffee, a substitute?

  1. It becomes vertical
  2. It remains unchanged
  3. It shifts to the right Correct answer.
  4. It shifts to the left

Explanation

Tea and coffee are substitutes, so a rise in tea's price makes coffee relatively cheaper. Consumers substitute coffee for tea, raising coffee demand at every price and shifting its curve rightward.

Question 50Demand, Supply and Elasticity

Which of the following goods is most likely to have inelastic demand?

  1. Life-saving insulin for a diabetic patient Correct answer.
  2. Air conditioners
  3. Restaurant meals
  4. Designer handbags

Explanation

Goods with few substitutes and that are necessities tend to have inelastic demand. Insulin is essential for a diabetic and has no close substitute, so quantity demanded changes little when its price changes.