Question

Question 16

1. 16) The price elasticity of supply measures:

   		a. how much supply changes when price changes
   		b. how much demand changes when supply changes
   		c. how much quantity supplied changes when price changes
   		d. how much quantity demanded changes when quantity supplied changes

3 points

Question 17

1. 17) Which factor(s) increase supply?

   		a. firms see a decrease in their costs
   		b. firms can acquire a better technology
   		c. there are more firms in the market
   		d. all of the above

3 points

Question 18

1. 18) When there is excess supply in a market engaged in perfect competition:

   		a. price goes down and quantity demanded decreases and quantity supplied decreases
   		b. price goes up and quantity demanded decreases and quantity supplied decreases
   		c.price goes up and quantity demanded increases and quantity supplied increases
   		d. price goes down and quantity demanded increases and quantity supplied decreases

3 points

Question 19

1. 19) When there is excess demand in a market engaged in perfect competition:

   		a. price goes up and quantity supplied increases and quantity demanded decreases
   		b. price goes down and quantity supplied increases and quantity demanded increases
   		c. price goes up and quantity supplied increases and quantity demanded increases
   		d. price goes down and quantity supplied decreases and quantity demanded increases

3 points

Question 20

1. 20) Prices in a market are often considered "unfair". If a price ceiling is set in a market engaged in perfect competition:

   		a. a shortage of the product develops
   		b. a surplus of the product develops
   		c. everyone who wants to buy the product at the price ceiling can purchase it
   		d. it is efficient

Answer 1

16) ans- (c)Price elasticity of supply is explained as the degree of change in quantity supplied when there is a change in prices.

Option (a) is wrong as elasticity of supply measures the change in quantity of supply and not supply. Option(b) is wrong as it talks about change in demand ,but ans should relate to change in quantity if supply. Option(d)is also wrong as it talks about change in demand. Also it is showing relation of demand with supply but price elasticity shows effect with respect to price change.

17) ans-(d) all of the above

Option (a) is correct as it tells that cost of production has gown down, thus now producing will be less costly hence producers will find this as opportunity as it can increase their profit, hence they will produce more, thus it will lead to increase in production (increase in supply)

Option (b) is correct, because when better technology is introduced the production process, it will speed up the production, and lower the time taken to produce than before, hence supply will be increased due to increase in effeciency.

Option (c) is correct , as when more firms enter the market, more will be the production as the sellers increased, the supply will increase.

18) ans- (d) When there is excess supply in a perfectly competitive market, say 50 pen, but demand is 17 pen, so there is excess supply. Producers need to decrease their price more to sell off their products because if they dont decrease the price, buyers wont buy because already demand is low. So sellers need to incentivise buyers to attract them to buy. Hence price will go down. As price goes down, law of demand will come into play and buyers will stand increasing their demand due to lower price. Also sellers will not increase the supply as it is no more profitable for them to sell at low prices.

Option(a) is wrong as it says buyers will decrease demand. Option (b) , (c) are wrong as it says price will go up. Prices cant go up because, already demand is low, increasing prices will demotivate existing buyer to buy, and demand will go down if prices are increased.

19) ans -(a) when there is excess demand, it means people are demanding more, they are ready to pay more but want the good. It is said as " too many people chasinng for a good". In this situation, producers are at a profitable position, as many people are demand the good, hence they increase the price , also they start to supply more because this situation if favourable for them, hence the more they supply, they more they can earn profit due to high price. And because of this at the later stage, law of supply comes into play and when prices go up, buyers get demotivated to buy, thus decrease their demand.

Option(b) , (d) are  wrong because it says prices will go down, which is opposite the concept of supply. Option (c) is wrong because when prices go up, demand decrease because of law of supply and not increase.

20) ans - (a) price ceiling can be explained as the maximum price at which sellers can sell their products. It is done by government so that poor people can purchase at the lower price. However this ceiling reduces the profitability of the sellers hence they reduce their supply. Thus shortage of products takes place.

Option (b) is wrong because , price ceiling is not profitable for sellers, so they decrease production and not increase production, for which shortage of products happens and not surpuls of product. Option(c) everyone wants to buy at the price , can buy it , will hold only true if supply is enough to meet the total demand but it is not known. Hence it is wrong, everyone may or may not be able to buy despite lower price as fixed by the price ceiling. Option(d) is wrong, as the market is effecient or not depends on many factors. Where price ceiling is beneficial for consumers , it is not the same for sellers. Thus it doesnt hold true.