Tag: income-output determination

Questions Related to income-output determination

The period of time, when supply is fully adjusted to change in demand is called_________.

economics income-output determination public debt public debt main feature of tax

  1. short period.

  2. very short period.

  3. mid period.

  4. long period.

Show answer
Correct Option: D
Explanation:

The period of time, when supply is fully adjusted to change in demand is called long term period. During the long period, all factors of production of inputs in the industry can be converted into variable. In the long run the firms can change the scale of production, the plant size can be changed, etc. Thus, in long run supply can be fully adjusted to the change in demand. 

Since under monopolistic competition, P>MC in equilibrium, there is _________.

economics income-output determination public debt public debt main feature of tax

  1. optimal allocation of resources

  2. nonoptimal allocation of resources

  3. greater allocation of resources

  4. lesser allocation of resources

Show answer
Correct Option: B
Explanation:

Under monopolistic competition, if Price is more than Marginal cost there is no optimal utilisation of resources. Optimum utilisation of resources will be achieved only when price = marginal cost. 

Which of the following statements is correct, in the case of excess demand?

economics income-output determination public debt public debt main feature of tax

  1. Market supply will be less than market demand

  2. Equilibrium price and equilibrium quantity will increase.

  3. Both (a) and (b).

  4. Neither (a) nor (b).

Show answer
Correct Option: C
Explanation:

In case of excess demand market supply will be less than market demand and equilibrium price and quantity will decrease. Its a situation in market when at the given price the quantity demanded id more than quantity supplied. Due to competition the prices will rise and then buyers will demanding less of the commodity. When the price is high suppliers increase the supply thereby increasing the supply as well as price of the commodity. 

At $ P _X  $ = Rs.  5, demand for Good-X is $30$ units and supply of Good-X is $20$ units, it is a situation of:

economics income-output determination public debt public debt main feature of tax

  1. excess demand.

  2. excess supply.

  3. equilibrium.

  4. none of the above

Show answer
Correct Option: A
Explanation:

Excess demand is a situation where the demand for a product is more than the supply for the product. In the given question, demand for good X is 30 units and supply for good X is 20 units. Hence, the excess demand is 10 units. 

What would price ceiling lead to when the maximum price is fixed lower than the equilibrium price?

economics income-output determination public debt public debt main feature of tax

  1. Excess demand.

  2. Excess supply.

  3. Deficient demand.

  4. None of the above

Show answer
Correct Option: A
Explanation:

Price ceiling means that a maximum price that can be charged for a product is fixed by the government. The sellers cannot charge a price beyond it. Price ceiling is done to help the people to get goods at a lower rate and save them from getting exploited. Hence, when the prices are reduced the demand for that commodity increases due to the mechanism of law of demand, while supply decreases, leading to excess demand.

In case of excess demand, equilibrium price must rise.

economics income-output determination public debt public debt main feature of tax

  1. True

  2. False

Show answer
Correct Option: A
Explanation:

True.
Excess demand generates pressure of demand on the existing supply. As an immediate impact, market price rises. It leads to extension of supply and contraction of demand. Finally, equilibrium is reached in the market where DX=SXDX=SX. This new equilibrium price happens to be higher than the initial equilibrium price.

Equilibrium price may not change even when market demand happens to change.

economics income-output determination public debt main feature of tax

  1. True

  2. False

Show answer
Correct Option: A
Explanation:

True.
Equilibrium price may not change with a change in market demand, if the market supply changes in a proportion equal to the change in market demand.

Household expenditures on consumer goods and services during the current period is a part of _____________.

economics income-output determination public debt public debt main feature of tax

  1. aggregate supply

  2. aggregate demand

  3. investment

  4. saving

Show answer
Correct Option: B
Explanation:

Aggregate demand refers to the total demand in the economy as a result of consumption expenditure of households, investments made and the government expenditure in a given year. The expenditure of households on consumption goods, in a given period is, thus, a part of aggregate demand in the economy for the given period of time.

Aggregate Supply and __________ are always equal.

economics income-output determination unemployment and employment generation the short run fixed price analysis of the product market liquidity preference and profit

  1. National Income

  2. Aggregate Demand

  3. Marginal Propensity to save are always equal.

  4. Average Propensity to Consume

Show answer
Correct Option: A
Explanation:

Aggregate supply refers to the desired level of output in the economy during an accounting year. It is through this output only that the producer sector generates income. Therefore, aggregate supply= consumption + savings. 

Which among the following determinants of aggregate supply are held to be constant in the short run?

economics income-output determination unemployment and employment generation the short run fixed price analysis of the product market liquidity preference and profit

  1. Natural resources

  2. Stock of capital

  3. State of technical knowledge

  4. All of the above

Show answer
Correct Option: D
Explanation:

Aggregate supply refers to the sales proceeds from the desired level of output in the economy during an accounting year. It is through this output only that the producer sector generates income in the economy at any given level of employment. The determinants of aggregate supply are natural resources, Human resources which refers to labor, stock of capital which refers to machinery and tools used in production and state of technical knowledge.