Market Mechanism – Equilibrium Price Quiz - ICSE Class 12 Economics

Free practice quiz: Market Mechanism – Equilibrium Price (ICSE Class 12 Economics). 38 multiple-choice questions with answers and explanations. Play online, no sign-up needed.

This ICSE Class 12 Economics practice quiz has 38 multiple-choice questions on Market Mechanism – Equilibrium Price, and 38 of them come with an explanation. Try the 5 sample questions below (tap an option to check yourself), then play the full quiz online. No sign-up needed.

Sample questions

1. When the market demand for a good increases due to a rise in consumer income, while the market supply remains unchanged, what is the immediate impact on the equilibrium price and quantity?

   1. Equilibrium price decreases, equilibrium quantity increases.
   2. Equilibrium price increases, equilibrium quantity decreases.
   3. Equilibrium price increases, equilibrium quantity increases.
   4. Equilibrium price decreases, equilibrium quantity decreases.
   Show answer

   Answer: C. Equilibrium price increases, equilibrium quantity increases.

   An increase in market demand, with supply constant, leads to a rightward shift of the demand curve. This shift causes both the equilibrium price and quantity to rise as consumers are willing to pay more for a larger quantity.

2. In a market for a good that is considered a Veblen good, what is the expected impact on the equilibrium price and quantity if there is a decrease in consumer income, assuming the good is not inferior?

   1. Equilibrium price increases, equilibrium quantity increases.
   2. Equilibrium price decreases, equilibrium quantity decreases.
   3. Equilibrium price decreases, equilibrium quantity increases.
   4. Equilibrium price increases, equilibrium quantity decreases.
   Show answer

   Answer: B. Equilibrium price decreases, equilibrium quantity decreases.

   A Veblen good is characterized by demand that increases as the price increases due to its exclusivity or status symbol value. A decrease in consumer income, assuming it's not an inferior good (where demand rises with income), will reduce the purchasing power for luxury or status goods. This would likely lead to a decrease in demand for the Veblen good, causing both equilibrium price and quantity to fall.

3. Consider a market where the demand curve is perfectly elastic and the supply curve is upward sloping. If a government policy increases the price that consumers are willing to pay for the good, what will be the impact on the equilibrium price and quantity?

   1. Equilibrium price increases, equilibrium quantity increases.
   2. Equilibrium price remains unchanged, equilibrium quantity increases.
   3. Equilibrium price increases, equilibrium quantity remains unchanged.
   4. Equilibrium price decreases, equilibrium quantity decreases.
   Show answer

   Answer: A. Equilibrium price increases, equilibrium quantity increases.

   A perfectly elastic demand curve means consumers are willing to buy an infinite quantity at a specific price. An increase in the price consumers are willing to pay effectively shifts the demand curve upwards. With an upward-sloping supply curve, this upward shift in demand will lead to a higher equilibrium price and a higher equilibrium quantity.

4. Consider a situation where the demand for a good is perfectly inelastic, and the supply curve is perfectly elastic. If there is an increase in input prices for producers, what will happen to the equilibrium price and quantity?

   1. Equilibrium price increases, equilibrium quantity remains unchanged.
   2. Equilibrium price remains unchanged, equilibrium quantity decreases.
   3. Equilibrium price increases, equilibrium quantity decreases.
   4. Equilibrium price decreases, equilibrium quantity increases.
   Show answer

   Answer: A. Equilibrium price increases, equilibrium quantity remains unchanged.

   A perfectly inelastic demand means the quantity demanded is fixed. An increase in input prices for producers will shift the supply curve upwards. With a fixed quantity demanded, this upward shift in supply will lead to a higher equilibrium price, but the equilibrium quantity will remain unchanged.

5. Consider a market for a good with an upward-sloping demand curve (rare, but possible in some theoretical contexts) and a downward-sloping supply curve. If there is a significant increase in consumer income, and the good is normal, what is the likely effect on the equilibrium price and quantity?

   1. Equilibrium price increases, equilibrium quantity increases.
   2. Equilibrium price decreases, equilibrium quantity decreases.
   3. Equilibrium price increases, equilibrium quantity decreases.
   4. Equilibrium price decreases, equilibrium quantity increases.
   Show answer

   Answer: A. Equilibrium price increases, equilibrium quantity increases.

   An increase in consumer income for a normal good shifts the demand curve to the right. With an upward-sloping demand curve, this rightward shift means that at any given price, consumers will demand more. Combined with a downward-sloping supply curve, this leads to both a higher equilibrium price and a higher equilibrium quantity.

More questions in this quiz

Answers and explanations are in the full quiz.

1. Consider a market where a technological advancement significantly reduces the cost of production for a particular good. If the market demand remains constant, how will this affect the equilibrium price and quantity?
2. If a government imposes a specific tax on each unit of a good produced, and this tax is levied on the producers, what is the likely effect on the equilibrium price and quantity in the market?
3. Suppose the market for organic fruits experiences a surge in consumer preferences due to health consciousness. Simultaneously, adverse weather conditions damage a significant portion of the crop, increasing production costs. What is the unambiguous effect on the equilibrium quantity?
4. If the price of a substitute good decreases significantly, how will this typically affect the equilibrium price and quantity of the original good, assuming its supply curve is downward sloping?
5. Consider a market with an upward-sloping supply curve and a downward-sloping demand curve. If the government introduces a binding price floor above the equilibrium price, what will be the consequence?
6. If a market is in equilibrium, and then a new regulation is imposed that significantly increases the cost of producing each unit of the good, what is the most likely outcome for the equilibrium price and quantity?
7. If the market demand for a good is perfectly inelastic and the supply curve is upward sloping, what will be the effect of a government subsidy to producers on the equilibrium price and quantity?
8. Consider a market where the demand curve is downward sloping and the supply curve is perfectly elastic. If a recession leads to a decrease in consumer incomes and the good is a normal good, what will happen to the equilibrium price and quantity?
9. When a government imposes a price ceiling below the equilibrium price, what is the immediate consequence for the market?
10. If the income elasticity of demand for a good is negative, and consumer incomes rise, what is the expected impact on the equilibrium price and quantity?
11. In a market where the demand curve is upward sloping (Giffen good) and the supply curve is upward sloping, what happens to the equilibrium price and quantity if the price of a substitute good increases?
12. Suppose a market is in equilibrium. If a natural disaster destroys a significant portion of the existing stock of a good, and demand remains unchanged, how will the equilibrium price and quantity be affected?
13. If the cross-price elasticity of demand between good X and good Y is positive, and the price of good Y decreases, what is the likely effect on the equilibrium price and quantity of good X?
14. What happens to the equilibrium price and quantity of a normal good if both the demand and supply curves shift to the right, but the demand shift is proportionally larger than the supply shift?
15. If the supply of a good is perfectly inelastic and the demand curve is downward sloping, what will be the effect of an increase in consumer income, assuming the good is a normal good?
16. Consider a market where the demand curve is downward sloping and the supply curve is upward sloping. If the government imposes a binding price ceiling below the equilibrium price, and simultaneously the cost of production increases, what is the unambiguous effect on the equilibrium quantity?
17. In a market where the supply is perfectly elastic, and there is an increase in consumer income, assuming the good is a normal good, what will be the impact on equilibrium price and quantity?
18. Consider a market with a downward-sloping demand curve and an upward-sloping supply curve. If the government introduces a subsidy per unit sold to consumers, what is the likely effect on the equilibrium price and quantity?
19. In a market where both demand and supply curves are downward sloping, and the demand curve is steeper than the supply curve, what is the likely effect on the equilibrium price and quantity if there is a decrease in the cost of production?
20. If the income elasticity of demand for a good is positive, and consumer incomes fall, what is the expected impact on the equilibrium price and quantity?
21. In a market where the demand curve is upward sloping and the supply curve is downward sloping, what is the likely effect on the equilibrium price and quantity if there is an increase in the cost of a key input for production?
22. If the cross-price elasticity of demand between good A and good B is positive, and the price of good B decreases, what is the likely effect on the equilibrium price and quantity of good A?
23. Consider a market with a downward-sloping demand curve and a perfectly elastic supply curve. If consumer expectations shift to anticipate significantly higher prices in the future, how will this affect the equilibrium price and quantity in the current period?
24. If a government imposes a tax on producers that is a fixed amount per firm, regardless of output, and the supply curve is upward sloping, how will this affect the equilibrium price and quantity?
25. What happens to the equilibrium price and quantity of a good if the demand curve shifts to the right and the supply curve shifts to the left, with the demand shift being smaller than the supply shift?
26. If a market is in equilibrium and the demand for a good becomes perfectly inelastic, while the supply curve remains upward sloping, what will be the effect of an increase in the price of a key input for production?
27. If the supply of a good is perfectly elastic and the demand curve is downward sloping, what is the effect of a significant decrease in the number of sellers in the market?
28. What happens to the equilibrium price and quantity of a good if both the demand and supply curves shift to the right, but the supply shift is proportionally larger than the demand shift?
29. If the demand for a good is perfectly elastic and the supply curve is downward sloping, what will be the impact of a decrease in the cost of production on the equilibrium price and quantity?
30. Consider a market where the demand curve is upward sloping and the supply curve is upward sloping. If there is a simultaneous increase in consumer income (good is normal) and a decrease in the cost of production, what is the unambiguous effect on the equilibrium quantity?
31. If a market experiences a decrease in demand and an increase in supply simultaneously, what is the unambiguous effect on the equilibrium quantity?
32. Consider a market with a downward-sloping demand curve and a perfectly elastic supply curve. If consumer expectations shift to anticipate significantly lower prices in the future, how will this affect the equilibrium price and quantity in the current period?
33. In a market with upward-sloping demand and supply curves, what happens to the equilibrium price and quantity if there is a simultaneous decrease in consumer income (for a normal good) and an increase in the cost of production?

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