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CA Foundation Unit 2A: Demand, Supply and Market Equilibrium — practice questions — page 2

Explore 42 free Unit 2A: Demand, Supply and Market Equilibrium questions in CA Foundation Economics. Open each question or exercise to read its content, reference answers and available explanation.

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Unit 2A: Demand, Supply and Market Equilibrium questions and exercises with answers

Showing questions 31–42 of 42.

Using the arc method, find the elasticity of supply when price rises from Rs 10 to Rs 15 and quantity supplied rises from 40 units to 60 units.Read the answer and worked solution →Using the arc method, find the elasticity of supply when price rises from Rs 12 to Rs 18 and quantity supplied rises from 30 units to 50 units.Read the answer and worked solution →For a highly perishable commodity that cannot be stored, the supply curve during a very short period is generally:Read the answer and worked solution →In market analysis, the price at which the quantity demanded of a commodity exactly equals the quantity supplied is termed the:Read the answer and worked solution →Consider a market with demand $Q_d = 60 - 10P$ and supply $Q_s = 5P - 15$. The equilibrium price is:Read the answer and worked solution →For the demand $Q_d = 60 - 10P$ and supply $Q_s = 5P - 15$, the equilibrium quantity traded is:Read the answer and worked solution →Holding supply unchanged, an increase in the demand for a normal good will cause the equilibrium price and equilibrium quantity to:Read the answer and worked solution →Pick the supply moveRead the answer and worked solution →Movement or shift of supply?Read the answer and worked solution →Spot the supply lieRead the answer and worked solution →Match each idea in price determinationRead the answer and worked solution →True or false: market equilibriumRead the answer and worked solution →

Worked practice questions

Using the arc method, find the elasticity of supply when price rises from Rs 10 to Rs 15 and quantity supplied rises from 40 units to 60 units.

  1. 1.0
  2. 0.4
  3. 2.5
  4. 1.5
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Correct answer: A. 1.0

1. Arc formula: $E_s = \dfrac{Q_2 - Q_1}{Q_2 + Q_1} \times \dfrac{P_2 + P_1}{P_2 - P_1}$. 2. Quantity term: $\dfrac{60 - 40}{60 + 40} = \dfrac{20}{100} = 0.2$. 3. Price term: $\dfrac{15 + 10}{15 - 10} = \dfrac{25}{5} = 5$. 4. $E_s = 0.2 \times 5 = 1.0$. Reading only the quantity term gives 0.4; using simple (non-arc) percentages gives 2.5. _Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 2 Unit III "Supply", p.9_

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Using the arc method, find the elasticity of supply when price rises from Rs 12 to Rs 18 and quantity supplied rises from 30 units to 50 units.

  1. 0.8
  2. 1.25
  3. 2.0
  4. 0.25
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Correct answer: B. 1.25

1. Arc formula: $E_s = \dfrac{Q_2 - Q_1}{Q_2 + Q_1} \times \dfrac{P_2 + P_1}{P_2 - P_1}$. 2. Quantity term: $\dfrac{50 - 30}{50 + 30} = \dfrac{20}{80} = 0.25$. 3. Price term: $\dfrac{18 + 12}{18 - 12} = \dfrac{30}{6} = 5$. 4. $E_s = 0.25 \times 5 = 1.25$. Inverting the two ratios gives 0.8; reading only the quantity term gives 0.25. _Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 2 Unit III "Supply", p.9_

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For a highly perishable commodity that cannot be stored, the supply curve during a very short period is generally:

  1. perfectly inelastic
  2. perfectly elastic
  3. relatively greater elastic
  4. unitary elastic
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Correct answer: A. perfectly inelastic

1. In a very short period, output already produced cannot be added to. 2. A perishable good cannot be stored to adjust the quantity offered. 3. So quantity supplied stays fixed whatever the price, giving $E_s = 0$. 4. Zero elasticity is perfectly inelastic supply. _Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 2 Unit III "Supply", p.6_

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Unit 1A: Scarcity, Choice and Opportunity CostUnit 3: Production, Cost & Perfect CompetitionTheory of Consumer Behaviour & DemandUnit 5: Factor Markets & Resource AllocationUnit 4: Imperfect Competition & Market StructuresTheory of Demand & Elasticity