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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. |
Price elasticity of supply is 2.5. At a price of Rs.5/unit its quantity supplied is 300 units. Calculate the quantity supplied at a price of Rs.4/unit. |
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Answer» `{:(" P 5"),(" P"_(1)" 4,"),(ulbar(Delta"P -1")):}" "{:("Q 300"),("Q"_(1)" "?),(ulbar(DeltaQ" ?")):}` `P.e_(S)=(P)/(Q)xx(DeltaQ)/(DeltaP)" or "2.5=(5)/(300)xx(DeltaQ)/(-1)` `DeltaQ=-150` `DeltaQ=Q_(1)-Q" or "-150=Q_(1)-300` `Q_(1)=150` |
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| 2. |
Due to decrease in price form Rs. 15/unit to Rs.10/unit, supply of a commodity falls from 100 units to 50 units. Find price elasticity of supply. |
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Answer» `{:(" P 15"),(" P"_(1)" 10"),(ulbar(DeltaP" -5")):}" "{:("Q 100"),("Q"_(1)" 50"),(ulbar(Delta-50)):}" "P.e_(S)=(15)/(100)xx(-50)/(-5)((P)/(Q)xx(DeltaQ)/(DeltaP))` `P.e_(S)=1.5` (Greater than unitary elastic.) |
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| 3. |
If price of a commodity falls from Rs.60/unit to Rs.58/unit, its supply falls from 400 units to 300 units. Find out elasticity of supply. |
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Answer» `{:(" P 60"),(" P"_(1)" 58"),(ulbar(DeltaP" -2")):}" "{:("Q 400"),("Q"_(1)" 300"),(ulbar(Delta-100)):}" "P.e_(S)=(P)/(Q)xx(DeltaQ)/(DeltaP)=(60)/(400)xx(-100)/(-2)=7.5` `P.e_(S)=7.5` (Greater than unitary elastic.) |
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| 4. |
What is meant by increase in supply? |
| Answer» An increase in supply means that at each of the prices there is now an increase in the quantity supplied—meaning that the curve shifts to the right | |
| 5. |
When price of a commodity falls from Rs. 12 per unit to Rs. 9 per unit, the producer supplies `75%` less output. Calculate price elasticity of supply. |
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Answer» `P.e_(S)=(%DeltaQ_(x))/(%DeltaP_(x))` `{:(" P 12"),(" P"_(1)" 9"),(ulbar(DeltaP-3)):}" "%DeltaP=(DeltaP)/(P)xx100=(-3)/(12)xx100=(-)25%` `P.e_(s)=((-)75%)/((-)25%)=3" Ans."P.e_(S)=3` |
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| 6. |
If price of a commodity falls from Rs.50/unit, supply also falls from 400 units to 200 units. Calculate price elasticity of supply. |
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Answer» `{:(" P 50"),(" P"_(1)" 48,"),(ulbar(DeltaP" -2 ")):}" "{:("Q 400"),(Q_(1)" 200"),(ulbar(DeltaQ" -200")):}" "P.e_(S)=(P)/(Q)xx(DeltaQ)/(DeltaP)=(50)/(400)xx(-200)/(-2)=12.5` Ans. `P.e_(S)=12.5` |
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| 7. |
Distinguish between change in supply and change in quantity supplied of a commodity. |
| Answer» CHANGE IN QUANTITY SUPPLIED...--- Meaning...It is the change in supply due to change in own price of the commodity....-- assumptions..It occur due to constant of other factors of supply and only increase or decrease in own price of the commodity..-- effect...It creates upward or downward movement along a supply curve...** CHANGE IN SUPPLY....-- Meaning ....It is the change in total supply due to change in all the other factors of supply...-- assumptions..It occurs due to change in all determinants of supply except own price....-- effect...It creates leftward or rightwards shift in supply curve...-- | |
| 8. |
At Rs.12/unit, quantity supplied of a commodity is 500 units. When its price riese to Rs.15/unit, its quantity supplied rises to 650 units. Calculate price elasticity of supply. Is supply elastic ? |
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Answer» `{:(" P 12"),(" P"_(1)" 15"),(ulbar(DeltaP" 3")):}" "{:("Q 500"),("Q"_(1)" 650"),(ulbar(DeltaQ" 150")):}" "P.e_(S)=(P)/(Q)xx(DeltaQ)/(DeltaP)=(12)/(500)xx(150)/(3)=1.2` Yes, supply is elastic as it is greater than one. |
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| 9. |
State three causes of increase in supply. |
| Answer» An increase in supply can be caused by:1. an increase in the number of producers.2. a decrease in the costs of production (such as higher prices for oil, labor, or other factors of production).3. weather (e.g., ideal weather may increase agricultural production) | |
| 10. |
The price elasticity of supply of commodities X and Y is equal. The price of X falls from Rs.10 to Rs.8 per unit and supply falls by 16 percent. The price of Y rises by `10%`. Calculate the percentage increase in the supply. |
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Answer» Let us calculate `P.e_(S)` for commodity X ltbr. `P=10," "P_(1)=8," "DeltaP=-2` `%DeltaP=(-2)/(10)xx100=-20%` `%DeltaS=-16%` given `"Hence "P.e_(S)=(%"Change in Quantity supplied"_(X))/(%"Change in price"_(X))=((-)16%)/((-)20%)=0.8` `P.e_(S)" of X"=P.e_(S)" of Y (given)"` Hence `P.e_(S)` of Y = 0.8 `P.e_(S)(Y)=(%"Change in Quantity supplied"_(Y))/(%"Change in price"_(Y))` `0.8=(%"change in Quantity supplied"_(Y))/(10%)` `%"change in QS"_(Y)=(8)/(10)xx10=8%.` |
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| 11. |
A firm supplies 10 units of a good at a price of Rs.5 per unit, `P.e_(S)` is 1.25, what quantity will the firm supply at a price of Rs.7 per unit. |
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Answer» `{:(" P 5"),(" P"_(1)" 2"),(ulbar(Delta"P 2 ")):}" "{:(" Q 10"),(" Q"_(1)" ?"),(ulbar(Delta"Q ?")):}` `P.e_(S)=(P)/(Q)xx(DeltaQ)/(DeltaP)` `1.25=(5)/(10)xx(DeltaQ)/(2)` `25=5DeltaQ` `DeltaQ=5` `DeltaQ=Q_(1)-Q` `5=Q_(1)-10` `Q_(1)=15` units |
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| 12. |
A firm earns a revenue of Rs.50 at the market price of a good at Rs.10. The market price increases to Rs.15 and the firm now earns a revenue of Rs.150. What is price elasticity of the firm supply cruve? |
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Answer» `{:(" P 10"),(" P"_(1)"15"),(ulbar(DeltaP" 5")):}" "{:("Q 5"),("Q"_(1)" 5"),(ulbar(DeltaQ" 5")):}" "{:("TR/Price"=50//10=5),("TR/Price"=150//15=10):}` `P.e_(S)=(P)/(Q)xx(DeltaQ)/(DeltaP)=(10)/(5)xx(5)/(5)=2` `P.e_(S)=2` |
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| 13. |
State any three causes of a rightward shift of supply curve. |
| Answer» Three reasons for the rightward shift of the supply curve:Price of the product: When there is an increase in the price of the product and if it is more than the marginal cost of production, it enables the firm to earn excess profit by selling at a higher price. So, there is an increase in the supply of the product, which causes a rightward shift of the supply curve.Technological condition: Technological progress creates positive approach in the supply of a particular product. It decreases the cost per unit and increases the productivity of given factor inputs of production. This leads to making the production of a particular good more profitable. So, there is an increase in the supply of product which causes a rightward shift of the supply curve.Law of diminishing marginal utility: According to this law, as more units of the variable factor are employed, the addition made to the total production falls, i.e. the cost of production increases. Thus, more quantity is supplied only at a higher price in order to cover the rise in cost of production. | |
| 14. |
Explain the effect of rise in the input prices on the supply of a good. |
| Answer» If the price of inputs goes up, the cost of producing the good increases. And therefore at each price producers need to sell their good for more money. So an increase in the price of inputs leads to a decrease in supply. | |
| 15. |
Explain the effect of the following on the supply of a commodity: (a) Fall in the prices of factor inputs (b) Rise in the prices of other commodities. |
| Answer» 1. Fall in prices of factors of production-When the amount payable to factors of production and cost of inputs increases, the cost of production also increases. This decreases the profitability. As a result, seller reduces the supply of the commodity. On the other hand, decrease in prices of factors of production or inputs, increases the supply due to fall in cost of production and subsequent rise in profit margin.2. Prices of Other Goods:As resources have alternative uses, the quantity supplied of a commodity depends not only on its price, but also on the prices of other commodities. Increase in the prices of other goods makes them more profitable in comparison to the given commodity. As a result, the firm shifts its limited resources from production of the given commodity to production of other goods. | |
| 16. |
How is the supply of a commodity affected by changes in the prices of other commodities? |
| Answer» The most important factor determining the supply of a commodity is its price. As a general rule, price of a commodity and its supply are directly related. It means, as price increases, the quantity supplied of the given commodity also rises and vice-versa. | |
| 17. |
Explain the effect of technical progress on the supply of a good. Or 'Improvement in technology shifts the supply curve towards left'. Defend or refute. |
| Answer» Technological progress leads to reduction in cost of producing output. Price remaining unchanged, less cost means more profit. Thus, it increases supply of the good. | |
| 18. |
(a) What is the effect of technological advancement on supply curve? (b) How can a developing country prepare itself to achieve economic progress ? |
| Answer» (b) Production and supply should be increased to achieve economic progress. In economically backward countries, there is shortage of resources, so effeorts should be made to use available resources optimally and avoid their wastage and unutilisation. | |
| 19. |
How does change in per unit tax influence that supply of a good by a firm ? Explain. Or How does subsidy infuence the supply of a good by a firm ? Explain. |
| Answer» Change in per unit tax raises cost of producing the good. Price remaining unchanged Profits decline. This is his disincentive to producers who supply less.A subsidy will shift the supply curve to the right and therefore lower the equilibrium price in a market. ... The amount of the subsidy is shown by the gap between the supply curves. | |
| 20. |
State the percentage method of measuring price elasticity of supply (in case of straight line supply curve). |
| Answer» According to this method, elasticity is measured as the ratio of percentage change in the quantity supplied to percentage change in the price. | |
| 21. |
Define price elasticity of supply. How is it measured ? |
| Answer» Elasticity of supply measures the degree of responsiveness of quantity supplied to a change in own price of the commodity. It is also defined as the percentage change in quantity supplied divided by percentage change in price. | |
| 22. |
Define price elasticity of supply. What are the two main methods for measuring elasticity of supply? Discuss any one method. |
| Answer» Price elasticity of supply states that there is a direct relationship between price and quantity supplied of a commodity, other things remaining constant.Methods of measuring price elasticity of supply-1. Percentage method2. Geometric method1. Percentage method-According to this method, elasticity is measured as the ratio of percentage change in the quantity supplied to percentage change in the price.Price elasticity of supply (Es) = Percentage Change in quantity supplied / Percentage change in PriceWhere:1. Percentage change in Quantity supplied = Change in Quantity Supplied (∆Q) / Initial Quantity Supplied (Q) x 1002. Change in Quantity (∆Q) = New Quantity (Q1) – Initial Quantity (Q)3. Percentage change in Price = Change in Price (∆P) / Initial Quantity (P) × 1004. Change in Price (∆P) = New Price (P1) – Initial Price (P) | |
| 23. |
Explain how technological progress is a determinant of supply of a good by a firm? Or Explain how input prices are a determinant of supply of a good by a firm? |
| Answer» Technological progress tends to lower the Marginal and Average Costs of production, because better technology facilitates higher output with the same inputs. Accordingly, producers are willing to supply more at the existing price, as a result, supply of producer increases.n case of increase in input price, cost of production tends to rise. Accordingly, producers will supply less of the commodity at its existing price as there is a decrease in producer’s profit.On the other hand, in case of fall in the prices of inputs, the cost of production tends to fall, leading to an increase in producer’s profit. This induces him to increase his supply. | |
| 24. |
Giving reasons state whether the following statement is true or false. 'The supply curve of a good shifts to the right when prices of other goods rise'. |
| Answer» This statement is false. Increase in prices of other goods makes their production more profitable for the producer. As a result the firm shifts its resources from production of the given commodity to the production of other goods. A decline in the supply of a commodity shift supply curve to left. | |
| 25. |
An increase in price of inputs will shift the supply curveA. to its leftB. to its rightC. no changeD. none of these. |
| Answer» Correct Answer - A | |
| 26. |
In case of unitary elastic supply, the supply curve starts fromA. the originB. `+` X`-` axisC. `-`X`-`axisD. none of these. |
| Answer» Correct Answer - A | |
| 27. |
What is the degree of elasticity of supply in the diagram ? A. zeroB. oneC. infinityD. none of these. |
| Answer» Correct Answer - A | |
| 28. |
`P.e_(s)` at point A in the adjacent diagram: A. 1B. zeroC. `gt1`D. `lt1` |
| Answer» Correct Answer - D | |
| 29. |
If quantity supplied of a good increases by `80%` due to a `40%` increase in its price, then `P,e_(s)` is :A. `(+)2`B. `(-)2`C. `(+)0.5`D. `(-)0.5` |
| Answer» Correct Answer - A | |
| 30. |
Coefficient of perfectly inelastic supply isA. infinityB. greater than oneC. zeroD. less than one. |
| Answer» Correct Answer - C | |
| 31. |
The following factor will cause increase in supply of a goodA. rise in price of goodB. increase in excise tax rateC. improvement in technologyD. all of these. |
| Answer» Correct Answer - C | |
| 32. |
The market supply of a good is determined byA. excise tax rateB. state of technologyC. price of inputsD. all of these. |
| Answer» Correct Answer - D | |
| 33. |
In case of _______ in supply, supply of the good rises at the same price :A. decreaseB. increaseC. extensionD. contration |
| Answer» Correct Answer - B | |
| 34. |
A seller rises supply of a good from 100 units to 200 units at a price of Rs.10 per unit. What will be P.`e_(S)`?A. infinityB. zeroC. oneD. less than one. |
| Answer» Correct Answer - A | |
| 35. |
In the short period the supply of a good isA. perfectly elasticB. perfectly inelasticC. unitary elasticD. less elastic. |
| Answer» Correct Answer - D | |
| 36. |
The factor causing extension in supply of a good isA. increase in number of firmsB. decrease in tax rateC. improvement in technologyD. increase in price of the good. |
| Answer» Correct Answer - D | |