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CBSE Questions for Class 11 Commerce Economics Market Equilibrium Quiz 5 - MCQExams.com
CBSE
Class 11 Commerce Economics
Market Equilibrium
Quiz 5
_____is the condition of Equilibrium position of a firm.
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MR-MC=0
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MR-MC > O
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MR-MC<0
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None of the above
Explanation
According to MR-MC approach a firm is in equilibrium when the 3 conditions are satisfied :-
1) When Marginal revenue is equal to marginal cost (MR - MC =- 0)
2) When MR cuts Mc from below and,
3) MC cuts AC at the minimum point.
if these 3 conditions are satisfied a firm is said to be in equilibrium and make the maximum possible profit.
When increase in demand equals increase in supply, equilibrium price will __________.
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rise
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fall
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remain unchanged
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be zero
Explanation
When the increase in supply is equal to increase in demand the equilibrium price will remain the dame at OP but the equilibrium Quantity will increase from Q1 to Q2.
A straight line supply curve passing through the origin forming an angle of $${60}^{o}$$ indicates _________.
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$${E}_{s}=0$$
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$${E}_{s}=1$$
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$${E}_{s}> 1$$
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$${E}_{s}< 1$$
Explanation
Unitary elasticity of supply refers to the situation when the percentage change in the quantity supplied of a commodity is exactly equal to the percentage change in its price. If price and quantity supplied change by the same magnitude, then we have unit elasticity of supply. Any straight-line supply Curve passing through the origin, such as the one shown in has an elasticity of supply equal to 1.
When decrease in demand is more than decrease in supply, then both equilibrium price and quantity will ________.
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remain unchanged
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increase
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decrease
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be zero
Explanation
When decrease in demand is more than the decrease in supply both the price and quantity will decreases. The decrease is quantity is relatively more than the decrease in price.
When supply is perfectly inelastic, supply curve will be ________.
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rising
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horizontal
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vertical
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falling
When supply curve is parallel to X-axis, elasticity of supply is _____________.
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zero
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infinity
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unity
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negative
In case of $${E}_{s}> 1$$, the supply curve is _____________.
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a horizontal straight line parallel to X-axis
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a vertical straight line parallel to Y-axis
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a straight line starting from Y-axis
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a straight line starting from X-axis
When increase in demand is less than increase in supply, equilibrium quantity will _________.
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increase
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decrease
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remain unchanged
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be zero
Explanation
When increase in supply is more than increase in demand the equilibrium price reduces and the equilibrium quantity increases. This is because, when supply Is more than demand, quantity supplied increases from Q to Q1 and the price will reduce from P to P1to bring the market at a new equilibrium point which is E1 .
An upward sloping straight line supply curve shooting from the X-axis indicates that __________.
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elasticity of supply is equal to zero
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elasticity of supply is equal to one
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elasticity of supply is greater than one
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elasticity of supply is less than one
Explanation
An upward sloping straight line supply curve shooting from the X-axis indicates that elasticity of supply is less than one.
When the elasticity is less than one, the supply of the good can be described as inelastic,
Two opposing forces that reach balance in market equilibrium are ____________.
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demand and supply
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labour and capital
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Government and scarcity
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Government and general public
Explanation
The two opposing forces demand and supply reach at a balance or say are same is when equilibrium is achieved in market.
At equilibrium level aggregate demand is equal to aggregate supply. This is the state where the market forces demand and supply are same and there can be no change in the price. This is the state where the ideal market price is achieved.
As a result of rise in consumer's income, the demand curve for coarse grain (inferior good) ___________.
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becomes a horizontal straight line
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becomes a vertical straight line
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shifts to the right
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shifts to the left
Explanation
An inferior good is one whose demand drops when people's incomes rise.
As income increases, the demand for inferior goods (say, coarse grains) falls from OQ to OQ
1
at the same price of OP. It leads to a leftward shift in the demand curve of inferior good from DD to D
1
D
1
. Hence, correct answer is option D.
An increase in demand and an increase in supply will ___________.
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affect equilibrium quantity in an indeterminate way and price will decrease.
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affect price in an indeterminate way and quantity will decrease.
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affect price in an indeterminate way and quantity will increase.
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affect equilibrium quantity in an indeterminate way and price will increase.
Explanation
When there is equal increase in supply and demand that is the shift of demand to the right from DD to D1D1 Is equal to the shift of supply curve from SS to S1S1 is equal. There is no change in the equilibrium price of the commodity but the equilibrium quantity will increase.
In a situation of excess supply, market price tends to _________.
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rise
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fall
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remain constant
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none of these
Explanation
In a situation of excess supply, market price tends to fall. Excess supply is a situation where the quantity demanded is less than the quantity supplied. In this situation the price reduces to cure the situation. When the price is reduced the customers demand more and supply is reduced and the situation is corrected.
In the situation of market equilibrium:
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Market demand = Market supply.
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Market demand > Market supply.
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Market demand < Market supply.
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none of the above
Explanation
At equilibrium level market demand is equal to market supply. This is the state where the market forces of demand and supply are same and there can be no change in the price. This is the state where the ideal market price is achieved.
Write True or False with a reason.
Increase in price leads to forward shift in supply curve of a commodity.
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True
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False
Explanation
False. Increase in price leads to increase in quantity supplied of a commodity. It does not lead to a shift in supply curve. Shift in supply curve is related to determinants, other than own price of the commodity.
Which of the following situation does not lead to an increase in equilibrium price?
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An increase in demand, without a change in supply.
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A decrease in supply accompanied by an increase in demand
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A decrease in supply without a change in demand
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An increase in supply accompanied by a decrease in demand.
Explanation
A situation where there is no increase in price is when there is decrease in demand increase in supply.
When there is decrease in demand and increase in supply the demand curve moves to the left from DD to D1D1 and the supply curve shifts to the right from SS to S1S1. So, at the new equilibrium point the quantity is not changed but the price will decrease from P to P1 because supply is increased and demand is reduced.
What combinations of changes would most likely decrease the equilibrium quantity?
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When supply increases and demand decreases.
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When demand increase and supply decreases
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When supply increases an demand increases
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When demand decreases and supply decreases.
Explanation
When demand decreases and supply decreases simultaneously the demand curve as well as the supply curve shifts to the left. Due to the left ward shift the equilibrium quantity decreases but there is no change price.
What will be the effect on equilibrium price if supply is decreased without any change in demand?
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No change in price
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Price will fall
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Price will rise
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None of the above
Explanation
In case when the supply is reduced and demand is the same price of the goods will reduce. This is because when supply increases and demand is less to bring the market in equilibrium the price is reduced so that demand increases and market reaches to equilibrium.
The period of time, when supply is fully adjusted to change in demand is called_________.
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short period.
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very short period.
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mid period.
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long period.
Explanation
The period of time, when supply is fully adjusted to change in demand is called long term period. During the long period, all factors of production of inputs in the industry can be converted into variable. In the long run the firms can change the scale of production, the plant size can be changed, etc. Thus, in long run supply can be fully adjusted to the change in demand.
Increase in the income of the buyers (in case of an inferior good) will cause________________.
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fall in equilibrium price and quantity.
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rise in equilibrium price and quantity.
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fall in equilibrium price and increase in equilibrium quantity
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increase in equilibrium price and fall in equilibrium quantity
Explanation
In case of inferior goods, the income affect is negative I.e. income and demand is inversely related. When the price of the goods decreases the consumer will purchase less of that commodity and use the extra purchasing power to purchase superior quality of goods. Hence, with the rise in real income/purchasing power the equilibrium quantity as well as the price will reduce.
When will increase in supply bring down the price, leaving the quantity demanded unchanged?
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When the demand for the commodity is perfectly elastic.
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When the demand for the commodity is perfectly inelastic.
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When the demand for the commodity is relatively elastic.
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When demand for the commodity is unitary elastic.
Explanation
When the demand for a commodity is
perfectly inelastic the change in price will have no effect on the quantity demanded. The consumers do not change their demand due to the change in price. This usually is seen in case of necessities. Hence, the equilibrium quantity will be same the price might increase or decrease.
What would price ceiling lead to when the maximum price is fixed lower than the equilibrium price?
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Excess demand.
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Excess supply.
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Deficient demand.
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None of the above
Explanation
Price ceiling means that a maximum price that can be charged for a product is fixed by the government. The sellers cannot charge a price beyond it. Price ceiling is done to help the people to get goods at a lower rate and save them from getting exploited. Hence, when the prices are reduced the demand for that commodity increases due to the mechanism of law of demand, while supply decreases, leading to excess demand.
At $$ P_X $$ = Rs. 5, demand for Good-X is $$30$$ units and supply of Good-X is $$20$$ units, it is a situation of:
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excess demand.
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excess supply.
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equilibrium.
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none of the above
Explanation
Excess demand is a situation where the demand for a product is more than the supply for the product. In the given question, demand for good X is 30 units and supply for good X is 20 units. Hence, the excess demand is 10 units.
The minimum assured price offered by the government to the farmers for the purchase of their output is called____________.
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ceiling price.
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equilibrium price.
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support price.
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market price.
Explanation
The minimum assured price offered by the government to the farmers for the purchase of their output is called support price. This helps the farmers to get adequate remuneration for their crop yield. It saves the customers from losses.
A fall in input price would cause:
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fall in equilibrium price and rise in quantity.
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rise in equilibrium price and fall in quantity.
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fall in equilibrium price as well as quantity.
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rise in equilibrium price as well as quantity.
Explanation
A fall in input price would cause fall in equilibrium price and rise in quantity. This is because when there is a state of equilibrium a change in price would change the equilibrium. Hence, when price falls there is an increase in the quantity demanded because the consumers will demand more product at a lower price.
When both the demand and supply curves shift to indicate increase in demand and supply in the same proportion___________.
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only equilibrium price changes
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only equilibrium quantity remains unchanged
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equilibrium price remains unchanged but equilibrium quantity decreases.
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equilibrium price remains unchanged but equilibrium quantity increases.
Explanation
As both the shift in demand curve from DD to D1D1 is equal to the shift in supply curve of SS to S1S1. As the increase in demand and supply takes place there is an increase in quantity from OQ to OQ1 but there is no change in the equilibrium price, it remains unchanged.
Which of the following statements is correct, in the case of excess demand?
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Market supply will be less than market demand
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Equilibrium price and equilibrium quantity will increase.
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Both (a) and (b).
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Neither (a) nor (b).
Explanation
In case of excess demand market supply will be less than market demand and equilibrium price and quantity will decrease. Its a situation in market when at the given price the quantity demanded id more than quantity supplied. Due to competition the prices will rise and then buyers will demanding less of the commodity. When the price is high suppliers increase the supply thereby increasing the supply as well as price of the commodity.
Supply being perfectly inelastic, what will be the effect of increase or decrease in demand on price and equilibrium quantity?
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Price increases or decreases respectively.
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No effect on equilibrium quantity.
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Both (a) and (b).
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None of the above
Explanation
In case of perfectly inelastic demand the change in price will
have no effect on the quantity demanded
. The consumers do not change their demand due to the change in price. This usually is seen in case of necessities. Hence, the equilibrium quantity will be same the price might increase or decrease.
In case of excess demand, equilibrium price must rise.
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True
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False
Explanation
True.
Excess demand generates pressure of demand on the existing supply. As an immediate impact, market price rises. It leads to extension of supply and contraction of demand. Finally, equilibrium is reached in the market where
D
X
=
S
X
DX=SX
. This new equilibrium price happens to be higher than the initial equilibrium price.
In a situation when import of inputs becomes expensive, equilibrium price of the commodity tends to rise.
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True
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False
Explanation
True.
When import of inputs becomes expensive, the cost of production rises, leading to a cut in supplies. The supply curve shifts to the left. Accordingly, equilibrium price of the commodity tends to rise.
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