Demand and Supply constitute the core analytical framework of Microeconomics and explain how prices and quantities are determined in a market. This MCQs set focuses strictly on the laws of demand and supply, their determinants, movements and shifts of curves, and market equilibrium. The questions aim to strengthen conceptual clarity and analytical precision required for competitive and academic examinations such as FPSC, CSS, PMS, GAT, and SPSC.
📌 Table of Contents
PART-1: Demand & Supply MCQs (1–10)
PART-2: Demand & Supply MCQs (11–20)
PART-3: Demand & Supply MCQs (21–30)
PART-4: Demand & Supply MCQs (31–40)
PART-5: Demand & Supply MCQs (41–50)
PART-2: Demand & Supply MCQs (11–20)
PART-3: Demand & Supply MCQs (21–30)
PART-4: Demand & Supply MCQs (31–40)
PART-5: Demand & Supply MCQs (41–50)
1. The law of demand assumes which of the following conditions?
A. Other factors remain constant
B. Income continuously changes
C. Supply is perfectly elastic
D. Prices are government controlled
Explanation:
The law of demand operates under the ceteris paribus assumption, meaning all other determinants remain unchanged.
The law of demand operates under the ceteris paribus assumption, meaning all other determinants remain unchanged.
2. A fall in price leading to an increase in quantity demanded is known as:
A. Expansion of demand
B. Increase in demand
C. Contraction of demand
D. Decrease in demand
Explanation:
Expansion of demand refers to a movement along the demand curve due to a fall in price.
Expansion of demand refers to a movement along the demand curve due to a fall in price.
3. Which factor causes a rightward shift of the demand curve?
A. Increase in consumer income for a normal good
B. Increase in the price of the good
C. Fall in population
D. Increase in supply
Explanation:
Higher income increases demand for normal goods, shifting the demand curve rightward.
Higher income increases demand for normal goods, shifting the demand curve rightward.
4. The law of supply states that:
A. Quantity supplied increases with price
B. Quantity supplied decreases with price
C. Supply is independent of price
D. Price depends on demand only
Explanation:
The law of supply shows a direct relationship between price and quantity supplied, other factors remaining constant.
The law of supply shows a direct relationship between price and quantity supplied, other factors remaining constant.
5. A change in technology affects supply by:
A. Shifting the supply curve
B. Causing movement along the curve
C. Changing market demand
D. Fixing equilibrium price
Explanation:
Technological improvements reduce production costs, causing the supply curve to shift rightward.
Technological improvements reduce production costs, causing the supply curve to shift rightward.
Figure: Market equilibrium determined by the interaction of demand and supply.
6. Market equilibrium occurs when:
A. Quantity demanded equals quantity supplied
B. Demand exceeds supply
C. Supply exceeds demand
D. Price is fixed by government
Explanation:
Equilibrium is established at the price where quantity demanded and supplied are equal.
Equilibrium is established at the price where quantity demanded and supplied are equal.
7. Excess demand in a market leads to:
A. Upward pressure on price
B. Downward pressure on price
C. Stable equilibrium
D. Increase in supply curve slope
Explanation:
When demand exceeds supply, buyers compete, pushing prices upward toward equilibrium.
When demand exceeds supply, buyers compete, pushing prices upward toward equilibrium.
8. A leftward shift of the supply curve indicates:
A. Decrease in supply
B. Increase in supply
C. Expansion of supply
D. Increase in demand
Explanation:
A leftward shift reflects reduced supply due to factors such as higher costs or taxes.
A leftward shift reflects reduced supply due to factors such as higher costs or taxes.
9. Movement along the supply curve is caused by:
A. Change in price of the good
B. Change in technology
C. Change in number of sellers
D. Change in input prices
Explanation:
A price change leads to expansion or contraction of supply along the same supply curve.
A price change leads to expansion or contraction of supply along the same supply curve.
10. Which situation creates excess supply in a market?
A. Price above equilibrium level
B. Price below equilibrium level
C. Increase in demand
D. Decrease in supply
Explanation:
When price is set above equilibrium, quantity supplied exceeds quantity demanded, creating surplus.
When price is set above equilibrium, quantity supplied exceeds quantity demanded, creating surplus.
11. A rightward shift of the supply curve indicates:
A. Increase in supply
B. Decrease in supply
C. Expansion of supply
D. Contraction of supply
Explanation:
An increase in supply means sellers are willing to offer more at each price, causing the supply curve to shift rightward.
An increase in supply means sellers are willing to offer more at each price, causing the supply curve to shift rightward.
12. Which factor leads to a decrease in demand?
A. Fall in consumer income for a normal good
B. Rise in population
C. Increase in advertising
D. Decrease in price of substitute goods
Explanation:
A fall in income reduces demand for normal goods, shifting the demand curve leftward.
A fall in income reduces demand for normal goods, shifting the demand curve leftward.
13. Excess supply exists when:
A. Quantity supplied exceeds quantity demanded
B. Quantity demanded exceeds quantity supplied
C. Market is in equilibrium
D. Demand curve shifts rightward
Explanation:
Excess supply occurs at prices above equilibrium where sellers offer more than buyers are willing to purchase.
Excess supply occurs at prices above equilibrium where sellers offer more than buyers are willing to purchase.
14. Which situation causes a leftward shift of the demand curve?
A. Decrease in consumer preferences
B. Fall in price of the good
C. Increase in population
D. Rise in income for normal goods
Explanation:
A decline in consumer tastes or preferences reduces demand at all price levels.
A decline in consumer tastes or preferences reduces demand at all price levels.
15. Expansion of supply refers to:
A. Increase in quantity supplied due to a rise in price
B. Rightward shift of the supply curve
C. Decrease in quantity supplied due to price fall
D. Leftward shift of the supply curve
Explanation:
Expansion of supply is a movement along the same supply curve caused by an increase in price.
Expansion of supply is a movement along the same supply curve caused by an increase in price.
16. A decrease in production cost will:
A. Increase supply
B. Decrease supply
C. Reduce demand
D. Cause movement along demand curve
Explanation:
Lower production costs enable producers to supply more at each price, shifting the supply curve rightward.
Lower production costs enable producers to supply more at each price, shifting the supply curve rightward.
17. When demand decreases and supply remains constant, equilibrium price will:
A. Fall
B. Rise
C. Remain unchanged
D. Become indeterminate
Explanation:
A decrease in demand creates downward pressure on price until a new equilibrium is established.
A decrease in demand creates downward pressure on price until a new equilibrium is established.
18. Which factor does NOT affect supply?
A. Consumer income
B. Technology
C. Prices of inputs
D. Government taxes
Explanation:
Consumer income affects demand, not supply; supply depends on production-related factors.
Consumer income affects demand, not supply; supply depends on production-related factors.
19. Shortage occurs when market price is:
A. Below equilibrium price
B. Above equilibrium price
C. Equal to equilibrium price
D. Fixed by producers
Explanation:
At prices below equilibrium, quantity demanded exceeds quantity supplied, resulting in shortage.
At prices below equilibrium, quantity demanded exceeds quantity supplied, resulting in shortage.
20. Increase in number of sellers will:
A. Increase market supply
B. Decrease market demand
C. Reduce equilibrium quantity
D. Shift demand curve leftward
Explanation:
More sellers in the market raise total supply, shifting the supply curve rightward.
More sellers in the market raise total supply, shifting the supply curve rightward.
21. When both demand and supply increase in equal proportion, equilibrium quantity will:
A. Increase
B. Decrease
C. Remain unchanged
D. Become zero
Explanation:
An equal rightward shift of both curves increases equilibrium quantity while price remains unchanged.
An equal rightward shift of both curves increases equilibrium quantity while price remains unchanged.
22. Which situation will definitely raise equilibrium price?
A. Increase in demand with constant supply
B. Increase in supply with constant demand
C. Decrease in both demand and supply
D. Increase in both demand and supply equally
Explanation:
An increase in demand, while supply remains unchanged, creates excess demand that raises price.
An increase in demand, while supply remains unchanged, creates excess demand that raises price.
23. A fall in price resulting from excess supply leads to:
A. Movement toward equilibrium
B. Further surplus
C. Elimination of demand
D. Leftward shift of demand
Explanation:
Price fall reduces surplus by decreasing quantity supplied and increasing quantity demanded.
Price fall reduces surplus by decreasing quantity supplied and increasing quantity demanded.
24. Which factor shifts the demand curve but not the supply curve?
A. Consumer tastes
B. Cost of production
C. Technology
D. Government taxation
Explanation:
Changes in consumer preferences affect demand directly but do not influence production conditions.
Changes in consumer preferences affect demand directly but do not influence production conditions.
25. An increase in price causes a contraction of demand when:
A. Other factors remain constant
B. Income changes simultaneously
C. Demand curve shifts rightward
D. Population increases
Explanation:
Contraction of demand is a movement along the same demand curve caused solely by a price increase.
Contraction of demand is a movement along the same demand curve caused solely by a price increase.
Figure: Effects of simultaneous changes in demand and supply on equilibrium.
26. A decrease in supply with unchanged demand will:
A. Increase equilibrium price
B. Decrease equilibrium price
C. Increase equilibrium quantity
D. Leave equilibrium unchanged
Explanation:
Reduced supply creates scarcity, pushing prices upward until a new equilibrium is formed.
Reduced supply creates scarcity, pushing prices upward until a new equilibrium is formed.
27. Which statement correctly distinguishes movement from shift in demand?
A. Price change causes movement, other factors cause shift
B. Income change causes movement
C. Taste change causes movement
D. Population change causes movement
Explanation:
Movements occur due to price changes, while shifts occur due to changes in non-price factors.
Movements occur due to price changes, while shifts occur due to changes in non-price factors.
28. Which factor causes an increase in market supply?
A. Reduction in production costs
B. Increase in consumer income
C. Rise in prices of substitutes
D. Increase in consumer preferences
Explanation:
Lower costs allow producers to supply more output at every price level.
Lower costs allow producers to supply more output at every price level.
29. At equilibrium price:
A. There is no tendency for price to change
B. Demand exceeds supply
C. Supply exceeds demand
D. Market experiences surplus
Explanation:
At equilibrium, market forces of demand and supply are balanced with no pressure on price.
At equilibrium, market forces of demand and supply are balanced with no pressure on price.
30. Which situation results in a new equilibrium at higher price and lower quantity?
A. Decrease in supply with constant demand
B. Increase in demand with constant supply
C. Increase in both demand and supply
D. Decrease in demand with constant supply
Explanation:
A reduction in supply raises prices and lowers equilibrium quantity when demand is unchanged.
A reduction in supply raises prices and lowers equilibrium quantity when demand is unchanged.
31. When demand increases more than supply, the equilibrium outcome will be:
A. Higher price and higher quantity
B. Higher price and lower quantity
C. Lower price and higher quantity
D. Lower price and lower quantity
Explanation:
A stronger increase in demand than supply creates excess demand, raising both equilibrium price and quantity.
A stronger increase in demand than supply creates excess demand, raising both equilibrium price and quantity.
32. Which situation causes contraction of supply?
A. Fall in price of the good
B. Increase in production cost
C. Improvement in technology
D. Increase in number of sellers
Explanation:
Contraction of supply is a movement along the supply curve caused by a fall in price.
Contraction of supply is a movement along the supply curve caused by a fall in price.
33. Which factor shifts both individual and market supply curves?
A. Change in technology
B. Change in consumer income
C. Change in price of substitutes
D. Change in tastes
Explanation:
Technology affects production conditions for all firms, shifting both individual and market supply curves.
Technology affects production conditions for all firms, shifting both individual and market supply curves.
34. If demand decreases while supply increases, equilibrium price will:
A. Fall
B. Rise
C. Remain unchanged
D. Become indeterminate
Explanation:
Decrease in demand and increase in supply both exert downward pressure on price.
Decrease in demand and increase in supply both exert downward pressure on price.
35. Which of the following leads to an increase in demand?
A. Rise in prices of substitute goods
B. Rise in price of the good itself
C. Fall in consumer income for normal goods
D. Decrease in population
Explanation:
When substitute goods become more expensive, consumers shift demand toward the given good.
When substitute goods become more expensive, consumers shift demand toward the given good.
36. Which statement about equilibrium quantity is correct?
A. It equals quantity demanded and supplied
B. It exists only during surplus
C. It exists only during shortage
D. It is fixed by producers
Explanation:
Equilibrium quantity is determined at the point where quantity demanded equals quantity supplied.
Equilibrium quantity is determined at the point where quantity demanded equals quantity supplied.
37. A decrease in demand with unchanged supply results in:
A. Lower equilibrium price and quantity
B. Higher price and lower quantity
C. Higher price and higher quantity
D. No change in equilibrium
Explanation:
Reduced demand lowers both price and quantity when supply remains constant.
Reduced demand lowers both price and quantity when supply remains constant.
38. Which factor causes a movement along the demand curve?
A. Change in price of the good
B. Change in income
C. Change in tastes
D. Change in population
Explanation:
Only a price change causes movement along the demand curve; other factors cause shifts.
Only a price change causes movement along the demand curve; other factors cause shifts.
39. If price is below equilibrium, market adjustment will involve:
A. Rise in price
B. Fall in price
C. Increase in supply only
D. Decrease in demand only
Explanation:
Price below equilibrium creates excess demand, causing upward pressure on price.
Price below equilibrium creates excess demand, causing upward pressure on price.
40. Which change will NOT affect market equilibrium?
A. Equal increase in demand and supply
B. Increase in demand only
C. Decrease in supply only
D. Decrease in demand only
Explanation:
Equal shifts of demand and supply leave equilibrium price unchanged, though quantity increases.
Equal shifts of demand and supply leave equilibrium price unchanged, though quantity increases.
41. When price rises and quantity demanded falls, it illustrates:
A. Law of demand
B. Law of supply
C. Increase in demand
D. Decrease in supply
Explanation:
The inverse relationship between price and quantity demanded reflects the law of demand.
The inverse relationship between price and quantity demanded reflects the law of demand.
42. A rightward shift of the demand curve indicates:
A. Increase in demand
B. Expansion of demand
C. Contraction of demand
D. Decrease in supply
Explanation:
A rightward shift shows higher demand at all prices due to non-price factors.
A rightward shift shows higher demand at all prices due to non-price factors.
43. Which factor causes a decrease in supply?
A. Increase in input prices
B. Improvement in technology
C. Increase in number of sellers
D. Subsidy on production
Explanation:
Higher input costs reduce producers’ willingness to supply, shifting the supply curve leftward.
Higher input costs reduce producers’ willingness to supply, shifting the supply curve leftward.
44. Excess demand exists when:
A. Quantity demanded exceeds quantity supplied
B. Quantity supplied exceeds quantity demanded
C. Market is in equilibrium
D. Supply curve shifts rightward
Explanation:
Excess demand occurs at prices below equilibrium, creating upward pressure on price.
Excess demand occurs at prices below equilibrium, creating upward pressure on price.
45. Which change leads to higher equilibrium quantity but uncertain price effect?
A. Increase in both demand and supply
B. Increase in demand only
C. Decrease in supply only
D. Decrease in demand only
Explanation:
When both demand and supply increase, quantity rises while price depends on relative shifts.
When both demand and supply increase, quantity rises while price depends on relative shifts.
Figure: Rightward shifts of demand and supply and their impact on equilibrium.
46. A decrease in price leading to a decrease in quantity supplied is called:
A. Contraction of supply
B. Decrease in supply
C. Expansion of supply
D. Increase in supply
Explanation:
A price fall causes movement along the same supply curve, termed contraction of supply.
A price fall causes movement along the same supply curve, termed contraction of supply.
47. Which factor causes a leftward shift of the demand curve?
A. Fall in income for a normal good
B. Rise in population
C. Increase in advertising
D. Increase in price of substitutes
Explanation:
Lower income reduces demand for normal goods, shifting the demand curve leftward.
Lower income reduces demand for normal goods, shifting the demand curve leftward.
48. At equilibrium, which condition holds true?
A. Quantity demanded equals quantity supplied
B. Demand exceeds supply
C. Supply exceeds demand
D. Price is fixed externally
Explanation:
Market equilibrium occurs where demand and supply are equal with no pressure on price.
Market equilibrium occurs where demand and supply are equal with no pressure on price.
49. Which change will increase equilibrium price and decrease equilibrium quantity?
A. Decrease in supply with constant demand
B. Increase in demand with constant supply
C. Increase in both demand and supply
D. Decrease in demand with constant supply
Explanation:
Reduced supply raises price and lowers quantity when demand does not change.
Reduced supply raises price and lowers quantity when demand does not change.
50. Which statement best describes market adjustment toward equilibrium?
A. Prices change to eliminate surplus or shortage
B. Quantities remain fixed
C. Demand and supply stop changing
D. Government intervention is required
Explanation:
Market prices adjust upward or downward to remove excess demand or excess supply.
Market prices adjust upward or downward to remove excess demand or excess supply.
Related MCQs: Economics MCQs | Elasticity of Demand and Supply MCQs | Consumer Behavior MCQs
External Reference: Supply and Demand – Wikipedia
Disclaimer: These MCQs are created for educational and practice purposes only.
About the Author: This content is prepared by an academic MCQs specialist for competitive exam preparation.
Last Updated: 7 February 2026
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