FORMS OF MARKET AND PRICE DETERMINATION (MCQ)

1. Under _________ market conditions, firms make normal profits in the long run.
(a) Perfect Competition
(b) Monopoly
(c) Oligopoly
(d) None of these
Ans (a) Perfect competition
2. If the influence of an individual seller on the market price is zero, the state of markets is
______________.
(Choose the correct alternative)
(a) Perfect competition
(b) Monopoly
(c) Monopolistic competition
(d) All of these.
Ans (a) Perfect competition
3. Under perfect competition, demand curve of a firm is______
(a) Positively sloped
(b) Negatively sloped
(c) Horizontal
(d) Vertical
Ans (c) Horizontal
4. At the market equilibrium, there is _________
(a) No excess demand
(b) No excess supply
(c) Horizontal
(d) Both (a) and (b)
Ans (d) Both (a) and (b)
5. If both supply and demand increase by the same proportion_________
(a) Price remains constant
(b) Quantity remains constant
(c) Price increases
(d) Quantity decreases
Ans (a) Price remains constant
6. What will be the effect on equilibrium market price of a good if its demand decreases and supply
increases?
(a) Equilibrium price Falls
(b) Equilibrium price Rises
 (c) Equilibrium price remains unchanged
(d) Equilibrium price may increase, decrease and remain unchanged.
Ans (a) Equilibrium price Falls
7. Which of the following is the effect of price ceiling?
(a) Hoarding
(b) Black marketing
(c) Rationing
(d) All of these
Ans (d) All of these
8. "Homogeneous Products" is the characteristic of _________
(a) Perfect competition
(b) Monopoly
(c) Monopolistic competition
(d) None of these
Ans (a) Perfect competition
9. A price at which a consumer is willing to buy and a seller is willing to sell the commodity is called
___________
(a) Minimum price
(b) Maximum price
(c) Equilibrium price
(d) None of these
Ans (c) Equilibrium price
10. Price ceiling refers to_____________
(a) Maximum retail price
(b) Maximum price the buyer is willing to pay
(c) Same price at which seller is willing to sell
(d) Maximum price the producer is legally allowed to charge
Ans (d) Maximum price the producer is legally allowed to charge
11. An increase in the supply of a good will causes_____________
(a) An increase in equilibrium price and decrease in equilibrium quantity
(b) Only increase in equilibrium quantity and no change in price
(c) Decrease in equilibrium price and equilibrium quantity
(d) Decrease in equilibrium price and an increase in equilibrium quantity.
Ans (d) Decrease in equilibrium price and an increase in equilibrium quantity.
12. If supply increases in a great proportion then demand
(a) New equilibrium price and quantity will be greater than the original equilibrium price and quantity.
 (b) The new equilibrium price will be greater than the original equilibrium price but equilibrium quantity
will be higher.
(c) The new equilibrium price and quantity will be lower than the original equilibrium price and
quantity.
(d) New equilibrium price will be lower than the original equilibrium price and the new equilibrium
quantity will be higher.
Ans (d) New equilibrium price will be lower than the original equilibrium price and the new
equilibrium quantity will be higher.
13. Which of the following is not a condition of perfect competition?
(a) A large number of firms
(b) Perfect mobility of factors
(c) Informative advertising to ensure that consumers have good information.
(d) Freedom of entry and exit into and out of the market.
Ans (C) Informative advertising to ensure that consumers have good information.
14. Under perfect competition, in the long run, there will be no___________
(a) Normal profits
(b) Supernormal profit
(c) Production
(d) Costs
Ans (a) Normal profits
15. Which of the following markets would most closely satisfy the requirements for a perfectly competitive
market?
(a) Electricity
(b) Cable television
(c) Cold-drinks
(d) Milk
Ans (a) Electricity
16. Which of the following statements is accurate regarding a perfectly competitive firm?
(a) Demand curve is downward sloping
(b) The demand curve always lies above the marginal revenue curve
(c) Average revenue need not to be equal to price
(d) Price is given and it is determined by the equilibrium in the entire market.
Ans (d) Price is given and it is determined by the equilibrium in the entire market.
17. Average revenue curve under the perfectly competitive market is parallel to the X-axis. It is so
because__________
(a) There is a homogeneous product in the market.
(b) Perfectly competitive firm can sell any quantity at a given price
 (c) There is free entry in the market
(d) There are many buyers and sellers in the market.
Ans (b) Perfectly competitive firm can sell any quantity at a given price.
18. An increase in the income, results in a higher equilibrium price and quantity when the good
is______________
(a) A normal good
(b) An inferior good
(c) A necessity
(d) All of these
Ans (a) A normal good
19. Excess demand in the market will lead to__________
(a) Decrease in demand
(b) Contraction of demand
(c) Decrease in supply
(d) None of the above
Ans (b) Contraction of demand
20. Excess supply in the market will lead to____________
(a) Expansion of demand
(b) Decrease in demand
(c) Increase in supply
(d) All of the above
Ans (a) Expansion of demand
21. If both supply and demand decrease by the same proportion
(a) Price remains constant
(b) Quantity remains constant
(c) Price increases
(d)Price decreases.
Ans (a) Price remains constant
22. Under which market form, a firm is a price taker?
(a) Perfect competition
(b) Monopoly
(c) Monopolistic competition
(d) All of these
Ans (a) Perfect competition
23. Under perfect competition, the firm earns normal profit in the long run because of__________
(a) Large number of buyers and sellers
(b) Perfect knowledge about the market
 (c) Freedom of entry and exit of firms
(d) Homogeneous commodity.
Ans (c) Freedom of entry and exit of firms
24. Demand curve of a perfectly competitive firm is a horizontal straight line parallel to the X-axis. It
happens because__________
(a) Selling cost are zero
(b) There is freedom of entry and exit
(c) Firm is a price-taker
(d) None of these.
Ans (c) Firm is a price-taker
25. Quantity of a commodity which is bought and sold at the equilibrium price is called___________
(a) Maximum quantity
(b) Minimum quantity
(c) Both a and b
(d) Equilibrium quantity
Ans (d) Equilibrium quantity
26. Excess demand in the market will lead to ___________
(a) Decrease in demand
(b) Increase in supply
(c) Contraction of demand
(d) Extension of supply
(a) A and B
(b) B and C
(c) C and D
(d) A and D
Ans. (c) C and D
27. If percentage decrease in demand is
greater than the percentage increase in supply, then equilibrium price will______
(a) Remain same
(b) Increases
(c) Decreases
(d) None of the above
Ans.(c) Decreases
28. If percentage increase in demand is less than the percentage decrease in supply, then equilibrium price
will ______
(a) Remain same
(b) Increases
 (c) Decreases
(d) None of the above
Ans. (b) Increases
29. Suppose the demand and supply curves of a Commodity-X is given by the following two equations
simultaneously:
Qd = 200 – P, Qs = 50 + 2p
What is the equilibrium price?
(a) 20
(b) 50
(c) 200
(d) 150
Ans. (b) 50
Explaination : We know that the equilibrium price and quantity are
achieved at:
Qd = Qs ⇒ 200 – p = 50 + 2p
(–) 3p = (–) 150
Therefore, Equilibrium Price p = 50
30. Suppose the demand and supply curves of a Commodity-X is given by the following two equations
simultaneously:
Qd = 200 – P, Qs = 50 + 2p
What is the equilibrium quantity?
(a) 20
(b) 50
(c) 200
(d) 150
Ans. (d) 150
Explaination : We know that the equilibrium price and quantity are
achieved at:
Qd = Qs ⇒ 200 – p = 50 + 2p
(–) 3p = (–) 150
Therefore, Equilibrium Price p = 50
Equilibrium Quantity q = 200 – 50 = 150 units