Home › CA Foundation › Business Economics › Determination of Prices › Heavy rains destroy a large part of the rice cro…
Heavy rains destroy a large part of the rice crop while demand for rice is unchanged. The most likely new equilibrium shows:
AA lower price and a larger quantity traded
BA higher price and a larger quantity traded
CA lower price and a smaller quantity traded
DA higher price and a smaller quantity traded
Answer & Solution
Correct answer: D. A higher price and a smaller quantity traded
1. Crop damage reduces supply, shifting the supply curve to the left.
2. With demand unchanged, a deficit appears at the old price.
3. The shortage drives the equilibrium price up and the quantity traded down.
4. Price up, quantity down means option D is correct.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 4 Unit II "Determination of Prices", p.8_
Related questions
When a binding price ceiling is fixed by the government below the equilibrium price of a gX 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 toHolding supply unchanged, an increase in the demand for a normal good will cause the equil