Home › CA Foundation › Business Economics › Determination of Prices › An equilibrium is described as stable when a dis…
An equilibrium is described as stable when a disturbance to it is followed by:
AA permanent move away from the starting point
BA self-adjusting return to the original equilibrium
CAn indefinite oscillation around the old price
DA government order restoring the earlier price
Answer & Solution
Correct answer: B. A self-adjusting return to the original equilibrium
1. Stability means any disturbance is self-correcting.
2. Price movements then erase the shortage or surplus on their own.
3. The market is pulled back to its original equilibrium, so option B is correct.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 4 Unit II "Determination of Prices", p.2_
Related questions
When a binding price ceiling is fixed by the government below the equilibrium price of a gHeavy rains destroy a large part of the rice crop while demand for rice is unchanged. The X is a normal good. Consumers' income rises while, at the same time, the price of a factorWhen demand decreases and supply increases simultaneously, which statement is correct?When demand increases and supply decreases at the same time, the certain outcome for the mIf both demand and supply increase by exactly the same amount, the new equilibrium will shWhen demand and supply both increase but supply rises in a greater proportion than demand,With demand held constant, a decrease in supply caused by obsolete technology will lead to