Market Equilibrium - 2 - Free MCQ Practice Test with solutions, UPSC Indian

Deficient demand refers to the situation when aggregate demand (AD) is less than the aggregate supply (AS) corresponding to full employment level of output in the economy.

c) Price of the inputs

Explanation:

A change in supply (shift of the supply curve) occurs due to non-price determinants of supply, such as:

1. Price of inputs (e.g., raw materials, labor, machinery):

   • If input prices rise, production costs increase, reducing supply (curve shifts left).

   • If input prices fall, supply increases (curve shifts right).

Why Not the Other Options?

• a) Price of the substitute good: Affects demand, not supply.

• b) Price of the given good: Causes a movement along the supply curve (quantity supplied changes), not a shift.

• d) Price of the complementary good: Also impacts demand, not supply.

Final Answer: c) Price of the inputs

Key Insight:

Supply shifts only when production conditions change (e.g., input costs, technology, taxes). Price changes of the good itself cause movements along the curve.

Complementary good or complement is a good with a negative cross elasticity of demand, in contrast to a substitute good. This means a good's demand is increased when the price of another good is decreased. ... When two goods are complements, they experience joint demand.
A complementary good is a good whose use is related to the use of an associated or paired good. Two goods (A and B) are complementary if using more of good A requires the use of more of good B. For example, the demand for one good (printers) generates demand for the other (ink cartridges).

When a tax is imposed on a good, the cost of production increases for producers. This makes supplying the good less profitable at every price, so the supply curve shifts leftward (upward).

• Demand does not shift because consumers’ preferences and income remain unchanged.
• There is movement along the demand curve due to higher prices, but no shift.
• A rightward shift of supply would happen if costs fell, not when a tax is imposed.

So, the tax affects supply conditions, not demand. Therefore , correct answer is Option C.

Price is what the producer receives for selling one unit of a good or service. A rise in price almost always leads to an increase in the quantity supplied of that good or service, while a fall in price will decrease the quantity supplied.

The demand curve contracts due to changes in price.The correct option is D.

The correct option is A.

Market for a good is in equilibrium . This means that demand for good is equal to supply of good at a given price. So if the demand increases then the supply fails to meet the whole demand, as a result the supply is less than demand. So the prices will increase so that demand decreases and demand is met by supply.

According to basic economic theory, the supply of a good will increase when its price rises. Conversely, the supply of a good will decrease when its price decreases. There's also price elasticity of demand. This measures how responsive the quantity demanded is affected by a price change.

A decrease in demand and an increase in supply will cause a fall in equilibrium price, but the effect on equilibrium quantity cannot be determined. ... For any quantity, consumers now place a lower value on the good, and producers are willing to accept a lower price; therefore, price will fall.

Increases in demand are shown by a shift to the right in the demand curve. This could be caused by a number of factors, including a rise in income, a rise in the price of a substitute or a fall in the price of a complement.

When only price will decrease or increase then moment will occur and other factors being constant.