CA Foundation · Paper 4 · Business Economics

Chapter 2 · Unit ·3 Supply

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Question 01

The law of supply states that:

price and quantity supplied are inversely related price and quantity supplied are directly related supply is constant at all prices price does not affect supply

Law of supply: higher price generally leads to higher quantity supplied, other things remaining the same.

Question 02

An increase in supply is represented by:

rightward shift of supply curve movement along supply curve leftward shift no change

Increase in supply means more is supplied at the same price, so the supply curve shifts right.

Question 03

A movement along the supply curve occurs due to change in:

technology cost of production price of the good itself government policy

Movement along the supply curve happens only due to change in the commodity’s own price.

Question 04

Which of the following is NOT a determinant of supply?

technology factor prices tax policy consumer income

Consumer income affects demand, not supply.

Question 05

If cost of production rises, supply will:

increase decrease remain unchanged first increase then decrease

Higher production cost reduces profitability, so supply decreases.

Question 06

Perishable goods generally have:

perfectly inelastic supply perfectly elastic supply unitary elasticity infinite elasticity

Perishable goods cannot be stored, so their supply is often fixed in the market period.

Question 07

Elasticity of supply measures:

change in demand price fluctuation responsiveness of supply to price change consumer behaviour

Elasticity of supply tells us how much quantity supplied responds to a change in price.

Question 08

If quantity supplied increases from 50 to 75 when price rises from 10 to 15, elasticity of supply is:

0.5 1 2 3

Percentage change in supply = 50%; percentage change in price = 50%; so elasticity of supply = 1.

Question 09

Which factor makes supply more elastic?

short time period perishable goods fixed factors long time period

Supply becomes more elastic in the long run because firms get time to adjust output and capacity.

Question 10

If sellers expect prices to rise in future, current supply will:

decrease increase remain constant be zero

Producers may hold back current supply if they expect higher prices later.

Question 11

If price of a substitute good rises, supply of the given good will:

increase remain same decrease become zero

Producers may shift resources toward the substitute that has become more profitable, reducing supply of the original good.

Question 12

A backward bending supply curve is associated with:

capital goods labour supply agriculture manufacturing

Labour supply may bend backward when higher wages induce more leisure instead of more work.

Question 13

When supply increases due to improved technology, it is called:

increase in supply extension of supply contraction of supply decrease in supply

Improved technology is a non-price factor, so it causes a rightward shift, यानी increase in supply.

Question 14

Extension of supply means:

increase due to technology shift in supply curve increase in number of firms increase in quantity supplied due to rise in price

Extension of supply is movement along the same supply curve because of increase in own price.

Question 15

If government imposes heavy tax, supply will:

increase remain unchanged decrease double

Tax increases cost of production and reduces profitability, so supply decreases.

Question 16

If elasticity of supply is zero, supply is:

perfectly inelastic perfectly elastic unitary elastic

When quantity supplied does not change at all with price, elasticity of supply is zero.

Question 17

If elasticity of supply is infinite, supply curve is:

vertical upward sloping backward bending horizontal

Perfectly elastic supply is shown by a horizontal supply curve.

Question 18

If price rises by 20% and supply rises by 10%, elasticity is:

0.2 0.8 0.5 2

Elasticity of supply = percentage change in quantity supplied / percentage change in price = 10 / 20 = 0.5.

Question 19

In very short period, supply is:

perfectly inelastic elastic perfectly elastic unitary

In the very short run or market period, firms cannot adjust output, so supply is fixed.

Question 20

Which industry generally has more elastic supply?

agriculture manufacturing perishable goods natural resources

Manufacturing firms can usually adjust production more easily than agriculture or perishable goods sellers.

Question 21

Assertion: Supply increases with price. Reason: Higher price increases profitability.

Both true and reason explains Both true but not related Assertion true, reason false Both false

This is the standard explanation of the law of supply under normal conditions.

Question 22

Assertion: Supply curve always slopes upward. Reason: Law of supply has no exceptions.

Both true Both false Assertion true, reason false Assertion false, reason true

The usual supply curve slopes upward, but there are exceptions such as backward bending labour supply.

Question 23

Which causes decrease in supply?

subsidy increase in cost better technology entry of firms

Increase in production cost reduces supply; the others generally increase supply.

Question 24

Supply is perfectly elastic when:

price changes but quantity does not quantity changes but price does not both change equally infinite quantity is supplied at one price

Perfectly elastic supply means sellers are willing to supply any amount at a given price.

Question 25

Supply curve shifts right when:

technology improves price rises demand rises income rises

Improved technology lowers cost and increases supply, shifting the curve rightward.

Question 26

Contraction of supply means:

shift left increase in supply decrease in quantity supplied due to fall in price technology change

Contraction of supply is movement downward along the same supply curve because price falls.

Question 27

Elasticity of supply is greater in:

very short run long run market period none

Longer time period means more flexibility in adjusting supply, so elasticity is greater.

Question 28

Price increases by 10% and supply increases by 20%. Elasticity is:

2 0.5 1 0

Elasticity of supply = 20 / 10 = 2.

Question 29

Supply depends on:

income tastes population cost of production

Cost of production is a key determinant of supply; the other listed factors are mainly demand-side.

Question 30

If price falls but supply still increases, the most likely reason is:

law of supply failure improvement in technology fall in demand increase in income

A rightward shift in supply due to better technology can outweigh the negative effect of a lower price.

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