Free Market Equilibrium 01 Practice Test - 11th Grade - Commerce 

Question 1

In which of the following economies is central control more?

A.

Communism

B.

Capitalism

C.

Mixed economy

D.

None of these

SOLUTION

Solution : A

Commuism is an examlple of a centrally planned economy.

Question 2

At which of the following points is the quantity demanded and quantity supplied equal?

A.

Shutdown point

B.

Break-even point

C.

Equilibrium point

D.

Profit-maximization point

SOLUTION

Solution : C

At equilibrium, quantity demanded is equal to the quantity supplied.

Question 3

Which of the following are examples of price controls?

A.

Minimum wage

B.

Rent control

C.

Minimum support price

D.

All of these

SOLUTION

Solution : D

Price control includes artificial floors and ceilings on the price.

Question 4

At equilibrium, which of the following are true?

A.

buyers' willingness to pay is equal to sellers' willingness to accept

B.

quantity demanded is equal to the quantity supplied

C.

there is no shortage or surplus

D.

all of these

SOLUTION

Solution : D

At equilibrium, buyers' willingness to pay is equal to sellers' willingness to accept. The quantity demanded is equal to the quantity supplied. Hence there is no excess demand or supply.

Question 5

In the long-run, when there is free entry and exit, the equilibrium price will be equal to the break-even price.

A.

True

B.

False

SOLUTION

Solution : A

In the long-run, when there is free entry and exit, the market price always tend to approach the break-even price and is constant. This means a horizontal supply. Hence, the equilibrium price would be equal to the shut-down price.

Question 6

Which of the following taxes is an example of Pigouvian tax?

A.

tax on petrol

B.

income tax

C.

tax on cigarettes

D.

tax on medicines

SOLUTION

Solution : C

Pigouvian taxes are used to decrease supply to socially optimal levels. In this case, decreasing the supply of cigarettes leads to a socially optimum outcome.

Question 7

A decrease in demand causes the equilibrium price to:

A.

Rise

B.

Fall 

C.

Remain constant 

D.

Indeterminate 

SOLUTION

Solution : B

A decrease in demand causes the equilibrium price to fall.

Question 8

When price is below equilibrium level, there will be:

A.

Surplus commodity in the market

B.

Shortage of commodity in the market

C.

Supply curve will shift

D.

Demand curve will shift

SOLUTION

Solution : B

When price is below equilibrium level, there will be a shortage of commodity in the market.

Question 9

If equilibrium price rises but equilibrium quantity remains unchanged, the cause is:

A.

Supply and demand both increase equally

B.

Supply and demand both decrease equally

C.

Supply decreases and demand increases

D.

Supply increases and demand decreases

SOLUTION

Solution : C

If equilibrium price rises but equilibrium quantity remains unchanged, the cause is that the supply decreases and demand increases.

Question 10

Price of a product is determined in a free market:

A.

By demand for the product

B.

By supply of the product

C.

By both demand and supply

D.

By the government

SOLUTION

Solution : C

Price of a product is determined in a free market by both demand and supply.

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