Supply Quiz - ICSE Class 12 Economics
Free practice quiz: Supply (ICSE Class 12 Economics). 42 multiple-choice questions with answers and explanations. Play online, no sign-up needed.
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The law of supply states that, ceteris paribus, as the price of a good increases, the quantity supplied will:
- Decrease, because producers are less willing to sell.
- Increase, because producers are more willing to sell at higher prices.
- Remain the same, as supply is fixed in the short run.
- Decrease, due to the substitution effect for producers.
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Answer: B. Increase, because producers are more willing to sell at higher prices.
The law of supply posits a direct relationship between the price of a good and the quantity supplied. Higher prices generally incentivize producers to supply more as it leads to higher potential profits.
Consider a market where the supply curve is upward sloping and the demand curve is downward sloping. If the government introduces a subsidy for producers, what will happen to the equilibrium quantity and price?
- Equilibrium quantity will decrease, and equilibrium price will increase.
- Equilibrium quantity will increase, and equilibrium price will decrease.
- Equilibrium quantity will increase, and equilibrium price will increase.
- Equilibrium quantity will decrease, and equilibrium price will decrease.
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Answer: B. Equilibrium quantity will increase, and equilibrium price will decrease.
A subsidy to producers effectively lowers their cost of production, causing the supply curve to shift to the right. With a downward-sloping demand curve, this rightward shift in supply leads to a higher equilibrium quantity and a lower equilibrium price.
If a producer expects the price of their good to fall in the future, how might this influence their current supply decisions?
- They might increase current supply to sell more at the current higher price.
- They might decrease current supply to save inventory for the future.
- They will likely keep current supply the same, awaiting price confirmation.
- They will reduce production capacity immediately.
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Answer: A. They might increase current supply to sell more at the current higher price.
If producers anticipate lower prices in the future, they have an incentive to sell as much as they can at the current, higher prices. This can lead to an increase in current supply.
If the price of inputs used in producing good X increases, and the price of inputs for producing good Y (a substitute in production) decreases, what is the most likely combined effect on the supply of good X?
- Supply of X will definitely increase.
- Supply of X will definitely decrease.
- Supply of X might increase or decrease, depending on the relative magnitude of changes.
- Supply of X will remain unchanged.
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Answer: B. Supply of X will definitely decrease.
An increase in the cost of inputs for good X directly increases production costs, leading to a leftward shift (decrease) in the supply of X. The change in the cost of inputs for good Y affects the supply of Y, and potentially the incentive to produce X if they are substitutes in production, but the primary and direct effect on X's supply comes from its own input costs.
If a government imposes a price ceiling below the equilibrium price, what is the likely effect on the quantity supplied?
- Quantity supplied will increase.
- Quantity supplied will decrease.
- Quantity supplied will remain at the equilibrium level.
- The supply curve will shift to the right.
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Answer: B. Quantity supplied will decrease.
A price ceiling set below the equilibrium price forces producers to sell at a lower price than they would prefer. This lower price reduces their incentive to produce and sell, leading to a decrease in the quantity supplied.