InterviewSolution
Saved Bookmarks
InterviewSolution
This section includes InterviewSolutions, each offering curated multiple-choice questions to sharpen your knowledge and support exam preparation. Choose a topic below to get started.
| 1. |
What is meant by viable industry? Explain with the help of a diagram. |
| Answer» Viable industry refers to an industry for which supply curve and demand curve intersect each other in the positive axis. | |
| 2. |
If the demand and supply of a commodity both increase, the equilibrium price may not change, may increase, may decrease." Explain by using diagrams. |
|
Answer» If the increase in demand equals increase in supply then the equlibrium price will not change. If the increase in demand is more than the increase in supply then the equilibrium price will increase. If the increase in demand is less than the increase in supply then the equilibrium price will fall. |
|
| 3. |
Suppose consumer taste shifts in favour of apples. As a result, equilibrium quantity will - and equilibrium price will -A. Increase, decreaseB. Decrease, increaseC. Increase, increaseD. Decrease, decrease |
| Answer» Correct Answer - (c) | |
| 4. |
The following diagram depicts the situation of : A. Excess SupplyB. Excess DemandC. Equilibrium ConditionD. None of these |
| Answer» Correct Answer - (a) | |
| 5. |
If the price of a commodity is below the equilibrium price, then quantity supplied is - than the quantity demanded. However, if the price is above in equilbirium price, then quantity supplied is - than the quantity demanded.A. Less, moreB. Less, lessC. More, lessD. More, More |
| Answer» Correct Answer - (a) | |
| 6. |
Explain the changes that will take place in the market when market price of a good is greater than its equilibrium price. Use diagram. |
| Answer» It is a situtation of excess supply. In this case, the competition among sellers will increase leading to fall in price of the commodity as sellers have to sell their existing stock. This fall in price will lead to an increase in quantity demanded and a fall in quantity supplied. These effects will take place until a new equilibrium is achieved where quantity demanded equals quantity supplied. | |
| 7. |
Briefly discuss the meaning of "Price Floor" with the help of diagram. |
| Answer» Price floor is the minimum price fixed for a commodity by the government (above the equilibrium price), which must be paid to the producers for their produce. | |
| 8. |
Market for a good is in equilibrium. There is simultaneous "Increase" both in demand and supply of the good. Explain its effect on market price. OR Suppose there is a sudden increase in birth rate. The increase in population has raised the demand for shirts. At the same time, due to fall in price of cotton, the supply of shirts have also increased. How will it affect the equilibrium price and equilibrium quantity of shirts? |
|
Answer» If the increase in demand is equal to increase in supply then the equilibrium price will not change. If the increase in demand is more than the increase in supply then the equilibrium price will rise. If the increase in demand is less than the increase in supply then the equilibrium price will fall. |
|
| 9. |
The are 10,000 identical individual buyers in the market for commodity X, each with a demand fucntion given by Qdx=12-2Px and 1,000 indentical producers of commodity X, each with a supply function given by Qsx=20Px. (i) Find the market demand function and the market supply function for commodity X. (ii) Obtain the equilibrium price and equilibrium quantity. (iii) Suppose the government decides to collect a tax of rupee 2 per unit sold from each of the 1,000 sellers of commodity X. What effect will this have on the equilibrium price and quantity of commodity X? |
|
Answer» (i) Market Demand function: `Q_("Mdx")=10,000(12-2P_("x"))=1,20,000" "P_("x")` Market Supply function: `Q_("Msx")=1,000 (20 P_("x"))=20,000P_("x")` (ii) At equilibrium, `O_("Mdx")=Q_("Msx")` It means, `1,20,000-20,000 P_("x")=20,000P_("x")` or, `P_(x)= rupee 3`. Putting the value of equilibrium price `(P_("x"))` in the market demand function, we get: `Q_("Mdx")=1,20,000-20,000 xx 3=60,000` units. Equilibrium Price= rupee 3, Equilibrium Quantity= 60,000 units. (iii) When tax of rupee 2 per unit is imposed and collected from each of the 1,000 sellers of commodity x, then the new equilibrium price becomes: `P_("x")-2`. New Market Supply function: `Q_("Msx")=20,000(P_("x")-2)=20,000P_("x")-40,000` For equilibrium, `Q_("Mdx")=Q_("Msx")` It means, `1,20,000-20,000 P_("x")=20,000P_("x")-40,000` or, `P_("x")`= rupee 4 Putting the value of equilibrium price `(P_("x"))` in the market demand function we get: `Q_("Mdx")=1,20,000-20,000xx4=40,000` units. New Equilibrium Price= rupee 4, New Equilibrium Quantity= 40,000 units. Thus, the equilibrium price increases and equilibrium quantity falls due to tax of rupee 2 per unit. |
|
| 10. |
How is the equilibrium price and equilibrium quantity of a normal commodity affected by an increase in the income of its buyers? Explain with the help of a diagram. OR x is a normal good for its consumers. Their income increases. Explain its chain of effects on equlltbrium price, demand and supply of X. (use diagram) |
| Answer» An increase in income of the consumer leads to increase in demand for the commodity or a rightwards shift in the demand curve. The increase in demand leads to competition among buyers causing a push in the market price. The increased price leads to an increase in the supply and a fall in demand leading to a new equilibrium where both the price and quantity demanded are higher. | |
| 11. |
What would happen to be Market Equilibrium of a good if decrease in demand is equal to increase in supply.A. Equilibrium quantity risesB. Equilibrium price risesC. Equilibrium quantity remains sameD. Equilibrium price remains same |
| Answer» Correct Answer - (c) | |
| 12. |
Both equilibrium price and quantity rise when :A. Increase in demand `gt` Increase in supplyB. Decrease in supply when the demand is prefectly inelasticC. Increase in supply when the demand is perfectly elasticD. Decrease in demand `lt` Increase in supply |
| Answer» Correct Answer - (a) | |
| 13. |
What will be the effect of increase in price of factor inputs on the equilibrium price and equilibrium quantity ?A. Equilibrium price will rise and equilibrium quantity will fallB. Both equilibrium price and quantity will fallC. Equilibrium price will fall and equilibrium quantity will riseD. Both equilibirum price and quantity will remain same |
| Answer» Correct Answer - (a) | |
| 14. |
Suppose the functions of demand and supply curves of a commodity are given by : `q^(D)=100-p` `q^(S)=60+p" for "pge15` `=0" for "0leplt15` (i) What does p=15 indicate ? (ii) Find the equilibrium price and equilibrium quantity. (iii) Whether the given commodity comes under the category of viable industry. (iv) Calculate market demand and at price of rupee 16, there is excess demand. |
|
Answer» (i) p = 15 indicates that the minimum average cost of the firm is rupee 15 and firm will not supply the commodity for any price less than rupee 15. (ii) Calculation of Equilibrium Price and Equilibrium Quantity At equilibrium, `q^(D)=q^(S)` It means, 100 - p = 60 + p 2p = 40 or p or Equilibrium Price = rupee 20. Putting the value of equilibrium price in the equation of demand curve: `q^(D)` or Equilibrium Quantity= 100 - 20 = 80 units. (iii) Yes, the given commodity comes under the category of viable industry as there is some price, at which supply and demand happen to coincide. (iv) At price of rupee 25: Market Demand = 100 - 25=75 units, Market Supply = 60 + 25 = 85 units. There will be excess supply at price of 25. At price of rupee 16: Market Demand= 100 - 16=84 units, . Market Supply = 60 + 16 = 76 units. There will be excess demand at price of rupee 16. |
|
| 15. |
When will (a) simultaneous increases and (b) simultaneous decreases in both demand and supply not affect the equilibrium price? Explain with the help of diagrams. |
|
Answer» Correct Answer - (a) Increase in Demand= Increase in Supply; (b) Decrease in Demand= Decrease in Supply. (a) When the simultaneous increase in both demand and supply are equal. (b) When the simulataneous decrease in both demand and supply are equal. |
|
| 16. |
If there is excess supply at a given price, then how will the equilibrium price be reached? Explain by diagram. |
| Answer» Excess supply is a situation where the quantity supplied of a commodity is more than the qunatity demanded of the commodity. This leads to a competition among sellers leading to a fall in the price. This fall in price causes an increase in quantity demanded and a fall in quantity supplied. A new equilibrium is achieved at a point where quantity demanded equals the quantity supplied. | |
| 17. |
What will be the effect on equilibrium price and equilibrium quantity of telephone instruments, if China exports a large number of telephone Instruments to India. |
| Answer» Equilibrium price will fall and equilibrium quantity wiII rise (due to Increase In supply). | |
| 18. |
Suppose the demand and supply curves of salt are given by: `0ltplt15` `q^(D)=1,000-p` `q^(S)=700+2p` (a) Find the equilibrium price and quantity. (b) Now suppose that the price of an input used to produce salt has increased so that the new supply curve `q^(S)=400+2p.` How does the equilibrium price and quantity change? (c) Suppose the goverment has imposed at tax of rupee 3 per unit on sale of salt. How does it affect the equilibrium price and quantity? |
|
Answer» (a) At equilibrium, `q^(D)=q^(S)` It means, 1,000-p=700+2p p= rupee 100 Putting the value of equilibrium price in the equation of demand curve, we get: `q^(D)=1,000-100=900` Equilibrium Price= rupee 100, Equilibrium Quantity=900 units When price of input increases, the new supply curve becomes: `q^(S)=400+2p` To calculate new equilibrium price and quantity, equantity, equating `q^(D)" and q^(S)` `1,000-p=400+2p` p=rupee 200 Puting the value of equilibrium price in the equation of demand curve or supply curve, we get: `q^(D)=1,000-200=800` Equilibrium Price = rupee 200, Equilibrium Quantity=800 untis Thus, the equilibrium price increases and equilibrium quantity falls due to rise in the price of inputs. (c) When tax fo rupee 3 per unit sale is imposed on the commodity, then the new supply curve becomes: `q^(S)=700+2(p-3)` `q^(S)=700+2p-6` `q^(S)=694+2p` To calculate new equilibrium price and quantity, equating `q^(D)" and "q^(S)` 1,000-p=694+2p p= rupee 102 Putting the value of equilibrium price in the equation of demand curve or supply curve, we get: `q^(D)=1,000-102=898` Equilibrium Price = rupee 102, Equilibrium Quantity=898 units Thus, the equilibrium price increases and equilibrium quantity falls due to tax of rupee 3 per unit on sale of salt. |
|
| 19. |
Price Floor can also be described as:A. Minimum support priceB. Minimum price above the equilibrium priceC. Price at which quantity supplied exceeds the quantity demandedD. All of these |
| Answer» Correct Answer - (d) | |
| 20. |
In case of - an increase in demand will lead to rise in equilibrium quantity, but no change in equilibrium price.A. Perfectly elastic supplyB. Perfectly inelastic suplyC. Highly elastic supplyD. Less elastic supply |
| Answer» Correct Answer - (a) | |
| 21. |
Which of the following situation does not lead to an increase in equilibrium price ?A. An increase in demand without a change in supplyB. A decrease in supply accompanied by proportinately equal increase in demand.C. A decrease in supply without a change in demand.D. An increase in supply accompanied by proportionately equal decrease in demand. |
| Answer» Correct Answer - (b) | |
| 22. |
If decrease in supply is less than the decrease in demand, then:A. Both equilibrium price and quantity increase.B. Both equilibrium price and quantity decrease.C. Equilibrium price increases and quantity decreases.D. Equilibrium price increases and quantity increases. |
| Answer» Correct Answer - (b) | |
| 23. |
If increases in demand is greater than the increases in supply, then the equilibrium price:A. DecreasesB. IncreasesC. Does not change at allD. Cannot be determined |
| Answer» Correct Answer - (b) | |
| 24. |
Discuss the concept of "Price Ceiling" with the help of diagram. |
|
Answer» Price ceiling refers to fixing the maximum price of a commodity that is lower than the equilibrium price. As a result of price ceiling, the market price falls below the equilibrium price leading to excess demand. |
|
| 25. |
Market for a good is in equilibrium. There is simultaneous "increase" both in demand and supply but there is no change in price. Explain how is it possible. Use a schedule. |
| Answer» It is possible when the increase in demand equals the increase in supply. | |
| 26. |
If equilibrium price of a good is greater than its market price, explain all the changes that will take place in the market. Use diagram. OR Explain the changes that will take place in the market when market price of a good is less than its equilibrium price. Use diagram. |
| Answer» Since the market price is less than the equilibrium price, there will be excess demand for the commodity. As a result, the competition among the buyers increase leading to an increase in the market price. An increase in price leads to a fall in quantity demanded and an increase in quantity supplied. These changes occur until a new equilibrium is achieved where quantity supplied equals quantity demanded. | |
| 27. |
Government has fixed the price as `OP_(1)`, while the equilibrium price is OP as seen in the following diagram: The price fixed by the government is known as:A. Price FloorB. Minimum support priceC. Price CeilingD. Both (a) and (b) |
| Answer» Correct Answer - (d) | |
| 28. |
The following diagram represents the situation of: A. Price FloorB. Price CeilingC. Either (a) or (b)D. Neither (a) nor (b) |
| Answer» Correct Answer - (b) | |
| 29. |
In a commodity market, excess demand exists when:A. market price is greater than equilibrium priceB. equilibrium price is greater than market priceC. equilibrium price is not equal to market priceD. government fixes the price |
| Answer» Correct Answer - (b) | |
| 30. |
Maximum Price Ceiling leads to a situation of:A. Excess DemandB. Excess SupplyC. Ether (a) or (b)D. Neither (a) nor (b) |
| Answer» Correct Answer - (a) | |
| 31. |
When market demand is more than market supply, it refers to a situation of :A. Excess SupplyB. Equilibrium LevelC. Excess DemandD. None of these |
| Answer» Correct Answer - (c) | |
| 32. |
Price Floor is the price fixed by the government, which is:A. Equal to Equilibrium PriceB. Below the Equilibrium PriceC. Above the Equilibrium PriceD. None of these |
| Answer» Correct Answer - (c) | |
| 33. |
refers to the minimum price, fixed by the government, which is above the equilibrium price.A. Price FloorB. Minimum support priceC. Both (a) and (b)D. Neither (a) nor (b) |
| Answer» Correct Answer - (c) | |
| 34. |
Equilibrium price falls and equilibrium quantity rises when:A. Decrease in demand `lt` Decrease in supplyB. Increase in demand = Increase in supplyC. Decrease in demand `lt` Increase in supplyD. Decrease in demand = Increase in supply |
| Answer» Correct Answer - (c) | |
| 35. |
Equilibrium price is determined when :A. Market Demand for a commodity is zeroB. Market Supply for a commodity is zeroC. Market Demand and Market Supply are equalD. Market Demand is either more or less than Market supply |
| Answer» Correct Answer - (c) | |
| 36. |
Which of the following statements is correct in case of non-viable industry ?A. Supply curve lies above the demand curveB. Supply curve lies below the demand curveC. Supply curve and demand curve intersect each otherD. Supply curve coincide with the demand curve |
| Answer» Correct Answer - (a) | |
| 37. |
If market demand function is given as: `Q_("MD")=25-2P` and market supply as: `Q_("MS")=3P`, then what will be the equilibrium price and equilibrium quantity? |
|
Answer» At equilibrium,`Q_(MD)=Q_(MS)` It means, 25 - 2P = 3P Or, 5P=25 P or Equilibrium Price = rupee 5. Putting the value of equilibrium price in the equation of market demand function: Equilibrium Quantity= 25 - 2 x 5=15 units. |
|
| 38. |
Equilibrium price remains the same when :A. Increase in Demand = Increase in SupplyB. Increase in Demand `gt` Decrease in SupplyC. Decrease in demand `gt` increase in SupplyD. Increase in demand = Decrease in Supply |
| Answer» Correct Answer - (a) | |
| 39. |
How does cost saving technology affect the equilibrium price and equilibrium quantity ?A. Equilibrium price will fall and equilibrium quantity will fallB. Equilibrium price will fall and equilibrium quantity will riseC. Both equilibrium price and quantity will fallD. Both equilibrium price and quantity will rise |
| Answer» Correct Answer - (b) | |
| 40. |
The market demand curve for commodity X is `q^(D)=700-p`. Now, let us allow for free entry and exit of the firms producing commodity X. Also assume the market consists of identical firms producing commodity X. Let the supply curve of a single firm be explained as: `q_(t)^(S)=8+3p " for "pge20` `=0 " for "0le p lt 20` (a) What is the significance of p = 20? (b) Calculate the equilibrium quantity and number of firms at the equilibrium price of rupee 20. |
|
Answer» (a) P = 20 indicates that the minimum average cost of the firm is rupee 20 and the firm will not supply or produce commodity X for any price less than rupee 20. (b) Determination of Equilibrium Quantity: It can be determined by putting the value of equilibrium price of rupee 20 in the market demand curve. `q^(D)` or Equilibrium Quantity=700-20=680 units. Determination of Number of Firms: The number of firms can be determined by dividing the equilibrium quantity by quantity supplied by each firm. Quantity supplied by a single firm. Quantity supplied by a single firm can be calculated by putting the value of equilibrium price of rupee 20 in the supply curve. `q_(t)^(S)=8+3xx20=68` units. Quantity supplied by each firm will be 68 units as there are identical prodcunig commodity X. `"Number " "of" " Firms"=("Equilibrium Quantity")/("Quantity Supplied by Each Firm")=(680)/(68)=10 " Firms"` |
|
| 41. |
What will be the effect on equilibrium price and equilibrium quantity when income increases in case of normal goods ?A. Both equilibrium price and quantity fallsB. Both equilibrium price and quantity risesC. Equilibrium price rises and equilibrium quantity fallsD. Equilibrium price falls and equilibrium quantity rises |
| Answer» Correct Answer - (b) | |
| 42. |
What will happen if the price prevailing in the market is: (i) above the equilibrium price? (ii) below the equilibrium price? |
|
Answer» (i) If the market price is above the equilibrium price, then there will be a situation of Excess Supply in the market. (ii) If the market price is below the equilibrium price, then there will be a situation of Excess Demand in the market. |
|
| 43. |
If at a given price of a commodity, there is excess demand, how will the equilibrium price be reached? Explain by diagram. |
| Answer» Excess demand means that the demand for the commodity is higher than its supply or the market price is lower than the equilibrium price. In such a case, the price is pushed up due to competition among buyers. This increased price leads to an increase in supply and a fall in demand leading a new equilibrium where quantity demanded equals quantity supplied. | |
| 44. |
Market for a good is in equilibrium. What is the effect on equilibrium price and quantity if both market demand and market supply of the good increase in the same proportion? Use diagram. |
| Answer» Only the equilibrium quantity will increase. The equilibrium price will remain the same since the effect of increase in supply and increase in demand will cancel out each other. | |
| 45. |
Explain the effect on equilibrium price when price of inputs increases. OR The market for cars is in equilibrium. Suppose the price of almunium parts (used in cars) increases. Explain the effect of rise the price of aluminimum parts on the equilibrium price and quantity of cars. (Use diagram) |
| Answer» When price of inputs increase, assuming no change in other factors, then the cost of production rises. As a result, supply decreases due to fall in the profitability level. It will lead to excess demand. This leads to competition among buyers, which raises the price. Increase in price leads to rise in supply and fall in demand. These changes continue till supply and demand become equal at a new equilibrium price. As there is a decrease in supply only, equilibrium quantity will fall, but equilibrium price will rise. | |
| 46. |
When actual price of a commodity is less than equilibrium price, its price:A. Starts risisngB. starts fallingC. starts fluctuatingD. remains constant |
| Answer» Correct Answer - (a) | |
| 47. |
The market for commodity A is in equilibrium. The price of its inputs rises. Explain its chain of effects on equilibrium price, quantity demanded and supplied with the help of a diagram. |
| Answer» A rise in price of inputs leads to an increase in the cost of production, hence leading to a decrease in supply as the profit margin of the producers reduce, keeping other things constant. The decrease in supply is associated with a leftwards shift in the supply curve. As a result, the price increases since there is less supply leading to a competition among buyers. As the price rises, the qunatity demanded falls but the quantity supplied increases. This effect will continue until the quantity demanded equals the quantity supplied. As a result of all this, the equilibrium quantity falls and the equilibrium price rises. | |