CUET UG Booster Economics 5 Test (D2) -

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CUET UG Booster Economics 5 Test (D2)

⏱️ 30 Minutes

❓ 20 Questions

📌 Answers are locked once submitted — results and explanations appear at the end.

CUET UG Booster Economics 5 Test (D2)

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QUESTION 1 OF 20

Which of the following statements are correct about the equilibrium definition in different contexts?
I. With fixed number of firms, it is where plans of consumers and firms match.
II. With free entry and exit, it implies the equilibrium price is equal to minimum average cost.
III. It guarantees that the number of firms will continually increase.

Answer Review

1 Which of the following statements are correct about the equilibrium definition in different contexts?
I. With fixed number of firms, it is where plans of consumers and firms match.
II. With free entry and exit, it implies the equilibrium price is equal to minimum average cost.
III. It guarantees that the number of firms will continually increase.

A I only

B II and III only

C I, II, and III

D I and II only

💡 Short Explanation

Equilibrium with a fixed number of firms means consumers' and firms' plans are compatible. Under free entry and exit, long-run equilibrium occurs where price equals minimum average cost. Equilibrium does not imply that the number of firms will continually increase.

✅ Correct Answer Explanation

The concept of equilibrium differs slightly depending on the market situation discussed in NCERT. Statement I is correct. When the number of firms is fixed, equilibrium is the situation where the production plans of firms match the purchase plans of consumers. Thus, market demand equals market supply. Statement II is correct. Under free entry and exit, firms enter the industry whenever supernormal profits exist. Entry increases market supply and lowers the market price until firms earn only normal profit. In long-run equilibrium under perfect competition, Price = Minimum Average Cost (Minimum AC) This is the long-run equilibrium condition discussed in NCERT. Statement III is incorrect. Free entry and exit does not imply that the number of firms will continuously increase. Firms enter only as long as supernormal profits exist. Once firms earn only normal profit, entry stops and long-run equilibrium is established. Therefore, Statements I and II are correct, making Option C the correct answer.

❓ Why Other Options Are Incorrect

Option A → Incorrect because Statement II is also correct under free entry and exit.
Option B → Incorrect because Statement III is false.
Option D → Incorrect because equilibrium does not guarantee continuous entry of firms.

🎯 Strategy

Used

Elimination

Application:

Evaluate Statement III first. Since equilibrium does not require firms to keep entering indefinitely, eliminate all options containing Statement III.

Final Logic:

Only Option D contains the correct combination of statements.

🧠 Memory Trick

Free Entry → Price = Minimum Average Cost (Minimum AC)

📚 Class XII – Introductory Microeconomics – Chapter: Market Equilibrium – Topic: Meaning of Equilibrium under Fixed Firms and Free Entry & Exit

2 Assertion (A): In a market with free entry and exit, firms will always earn supernormal profits at the prevailing equilibrium price.
Reason (R): The equilibrium price is always equal to the minimum average cost of the firms.

A Both false

B A true, R false

C Both true, R explains A

D A false, R true

💡 Short Explanation

In long-run equilibrium, firms earn only normal profit. Free entry eliminates supernormal profit. The equilibrium price equals the minimum average cost.

✅ Correct Answer Explanation

Under free entry and exit, if firms earn supernormal profits, new firms enter the market. This increases market supply and lowers the market price. The process continues until firms earn only normal profit. Hence, the Assertion is false, because firms do not always earn supernormal profits in long-run equilibrium. The Reason is true. According to NCERT, in long-run competitive equilibrium, Price = Minimum Average Cost (Minimum AC) At this point, firms earn only normal profit and there is no incentive for entry or exit. Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect because the Reason is true.
Option B → Incorrect because the Assertion is false.
Option C → Incorrect because the Assertion itself is false; therefore, both statements cannot be true.

🎯 Strategy

Used

Elimination

Application:

Recall that free entry removes supernormal profits in the long run. This immediately makes the Assertion false while leaving the Reason true.

Final Logic:

Assertion False + Reason True = Option D.

🧠 Memory Trick

No Supernormal Profit in Long Run

📚 Class XII – Introductory Microeconomics – Chapter: Market Equilibrium – Topic: Long-Run Equilibrium under Free Entry and Exit

3 Arrange the logical sequence for determining the equilibrium price with free entry and exit:
1. New firms enter, causing the supply curve to shift rightward.
2. Prevailing price is greater than minimum average cost, allowing supernormal profit.
3. Market price falls as supply increases.
4. Supernormal profits are wiped out, and price equals minimum average cost.

A 2, 1, 3, 4

B 1, 2, 4, 3

C 3, 4, 1, 2

D 2, 3, 1, 4

💡 Short Explanation

Supernormal profits attract new firms. Entry increases market supply. Increased supply lowers market price. Long-run equilibrium is reached when only normal profit remains.

✅ Correct Answer Explanation

The adjustment process under free entry and exit is: 1. Prevailing price is greater than Minimum Average Cost, allowing supernormal profit. 2. New firms enter the industry. 3. Market supply increases, causing the market price to fall. 4. Supernormal profits disappear and Price = Minimum Average Cost (Minimum AC). Thus, the correct sequence is: 2 → 1 → 3 → 4 Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Incorrect because firms cannot enter before supernormal profits exist.
Option C → Incorrect because price cannot fall before firms enter the market.
Option D → Incorrect because supply must increase before the market price falls.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Arrange the events according to the long-run adjustment process in a perfectly competitive market.

Final Logic:

Supernormal Profit → Entry → Supply Increases → Price Falls → Normal Profit.

🧠 Memory Trick

Profit → Entry → Supply ↑ → Price ↓

📚 Class XII – Introductory Microeconomics – Chapter: Market Equilibrium – Topic: Free Entry and Exit Adjustment Process

4 If the market clears in a free entry and exit scenario where market demand is qD = 200 - p, and minimum average cost is Rs 20, what is the equilibrium quantity?

A 200

B 180

C 20

D 160

💡 Short Explanation

Under free entry and exit, equilibrium price equals minimum average cost. Minimum average cost = ₹20. Substitute the equilibrium price into the demand equation.

✅ Correct Answer Explanation

In long-run equilibrium under free entry and exit, Price = Minimum Average Cost Since the Minimum Average Cost is ₹20, Price = ₹20 Substitute this into the demand equation: qD = 200 − p qD = 200 − 20 = 180 Since the market clears, Equilibrium Quantity = 180 Therefore, Option B is correct.

🎯 Strategy

Used

Substitution

Application:

Use the long-run equilibrium condition Price = Minimum Average Cost, then substitute the equilibrium price into the demand equation.

Final Logic:

Price = ₹20 ⇒ qD = 180.

🧠 Memory Trick

Long Run → Price = Minimum AC → Find Quantity

📚 Class XII – Introductory Microeconomics – Chapter: Market Equilibrium – Topic: Long-Run Equilibrium with Free Entry and Exit

5 Match the Following scenarios to their respective equilibrium quantity changes:

List I	List II
1. Demand shifts leftward, supply leftward	a. Quantity increases
2. Demand shifts rightward, supply rightward	b. Quantity decreases
3. Demand shifts leftward, supply rightward	c. Price increases
4. Demand shifts rightward, supply leftward	d. Price decreases

A 1-b, 2-a, 3-d, 4-c

B 1-a, 2-b, 3-c, 4-d

C 1-b, 2-a, 3-c, 4-d

D 1-a, 2-a, 3-d, 4-c

💡 Short Explanation

Simultaneous leftward shifts reduce equilibrium quantity. Simultaneous rightward shifts increase equilibrium quantity. Opposite shifts produce definite price effects. The correct matching follows standard demand–supply analysis.

✅ Correct Answer Explanation

Analyse each case separately: 1. Demand shifts left & Supply shifts left → Quantity decreases (b). Both shifts reduce equilibrium quantity, although the effect on price depends on the relative magnitude. 2. Demand shifts right & Supply shifts right → Quantity increases (a). Both shifts increase equilibrium quantity, while the effect on price is uncertain. 3. Demand shifts left & Supply shifts right → Price decreases (d). Both shifts push the equilibrium price downward. The effect on quantity is uncertain. 4. Demand shifts right & Supply shifts left → Price increases (c). Both shifts push the equilibrium price upward. The effect on quantity is uncertain. Thus, the correct matching is: 1 → b 2 → a 3 → d 4 → c Therefore, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Incorrect because simultaneous leftward shifts do not increase equilibrium quantity.
Option C → Incorrect because a leftward demand shift with a rightward supply shift causes a fall in price, not a rise.
Option D → Incorrect because simultaneous leftward shifts reduce, rather than increase, equilibrium quantity.

🎯 Strategy

Used

Option Grouping

Application:

Recall the standard effects of simultaneous demand and supply shifts on equilibrium price and quantity, then match each pair systematically.

Final Logic:

Only Option A correctly matches all four scenarios.

🧠 Memory Trick

Demand ↑ + Supply ↓ → Price ↑

📚 Class XII – Introductory Microeconomics – Chapter: Market Equilibrium – Topic: Simultaneous Shifts in Demand and Supply

6 Under the balance condition of free entry and exit, how is the equilibrium number of firms (n0) calculated?

A By adding total quantity demanded to the firm's quantity.

B By dividing total equilibrium quantity (q0) by the quantity supplied by a single firm (q0f).

C By multiplying market price with total quantity.

D By setting average cost to zero.

💡 Short Explanation

Total market output is shared among identical firms. The equilibrium number of firms equals market output divided by the output of one firm. This applies in long-run equilibrium under free entry and exit.

✅ Correct Answer Explanation

In a perfectly competitive market with free entry and exit, identical firms produce the same equilibrium output. The equilibrium number of firms is calculated as: n0 = q0 / q0f where: q0 = Total market equilibrium quantity q0f = Equilibrium output of one representative firm Therefore, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect because adding market and firm quantities has no economic meaning.
Option C → Incorrect because multiplying price and quantity gives total revenue, not the number of firms.
Option D → Incorrect because average cost is minimized in equilibrium but is not set equal to zero.

🎯 Strategy

Used

Substitution

Application:

Use the NCERT relationship between market output and firm output.

Final Logic:

n0 = q0 / q0f

🧠 Memory Trick

Market Output ÷ Firm Output = Number of Firms

📚 Class XII – Introductory Microeconomics – Chapter: Market Equilibrium – Topic: Free Entry and Exit – Equilibrium Number of Firms

7 Excess demand equal to 80 - 2p exists for a commodity. At what price level will excess demand be strictly positive, assuming p* = 40?

A p = 40

B p = 45

C p < 40

D p > 40?

💡 Short Explanation

Excess demand is positive when demand exceeds supply. Solve the inequality. Prices below equilibrium create excess demand.

✅ Correct Answer Explanation

The excess demand function is: ED = 80 − 2p For excess demand to be positive, 80 − 2p > 0 80 > 2p 40 > p Therefore, p < 40 Thus, whenever the market price is below the equilibrium price (p = 40*), excess demand exists. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → At p = 40, excess demand equals 0.
Option B → At p = 45, excess demand becomes negative.
Option D → Prices above equilibrium create excess supply.

🎯 Strategy

Used

Substitution

Application:

Solve the inequality for ED > 0.

Final Logic:

ED > 0 ⇒ p < 40

🧠 Memory Trick

Low Price → High Demand → Shortage

📚 Class XII – Introductory Microeconomics – Chapter: Market Equilibrium – Topic: Excess Demand

8 Match the Following causes with their specific market impact:

List I	List II
1. Incomes of consumers increase for a normal good	a. Creates excess demand at initial price p0 due to reduced supply
2. Market supply curve shifts leftward	b. Creates excess demand at initial price p0 due to increased demand
3. Incomes of consumers decrease for a normal good	c. Creates excess supply at initial price p0 due to reduced demand
4. Market supply curve shifts rightward	d. Creates excess supply at initial price p0 due to increased supply

A 1-a, 2-b, 3-c, 4-d

B 1-b, 2-b, 3-c, 4-d

C 1-a, 2-a, 3-c, 4-d

D 1-b, 2-a, 3-c, 4-d

💡 Short Explanation

Higher income increases demand for normal goods. Leftward supply shift reduces supply. Lower income reduces demand. Rightward supply shift increases supply.

✅ Correct Answer Explanation

The correct matching is: 1 → b: Higher income increases demand for a normal good, creating excess demand at the initial price. 2 → a: A leftward shift of the supply curve reduces supply, creating excess demand. 3 → c: Lower income decreases demand, leading to excess supply. 4 → d: A rightward supply shift increases supply, creating excess supply. Hence, the correct sequence is: 1 → b 2 → a 3 → c 4 → d Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect because an increase in income affects demand, not supply.
Option B → Incorrect because a leftward supply shift creates excess demand due to reduced supply, not increased demand.
Option C → Incorrect because increased income does not reduce supply.

🎯 Strategy

Used

Option Grouping

Application:

Identify the demand-side and supply-side causes separately before matching them.

Final Logic:

Only Option D correctly pairs each cause with its market impact.

🧠 Memory Trick

Supply ↓ → Shortage

📚 Class XII – Introductory Microeconomics – Chapter: Market Equilibrium – Topic: Causes of Excess Demand and Excess Supply

9 Assertion (A): An agricultural price support programme typically results in zero excess supply in the market.
Reason (R): The government sets the price floor higher than the market-determined equilibrium price.

A Both false

B A true, R false

C Both true, R explains A

D A false, R true

💡 Short Explanation

A price support programme is a price floor. A price floor above equilibrium creates surplus. Therefore, excess supply is created, not eliminated.

✅ Correct Answer Explanation

An agricultural price support programme fixes a price floor above the market equilibrium price. As a result: Quantity supplied increases. Quantity demanded decreases. Therefore, qS > qD creating excess supply (surplus). Hence, Assertion is false, because the programme does not result in zero excess supply. Reason is true, because the support price is fixed above the equilibrium price. Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect because the Reason is true.
Option B → Incorrect because the Assertion is false.
Option C → Incorrect because the Assertion is not true.

🎯 Strategy

Used

Elimination

Application:

Recall the effect of a price floor above equilibrium.

Final Logic:

Price Floor → Surplus → Assertion False, Reason True.

🧠 Memory Trick

MSP High → Surplus High

📚 Class XII – Introductory Microeconomics – Chapter: Market Equilibrium – Topic: Price Floor and Excess Supply

10 Arrange the sequence showing the creation and effect of excess supply due to a price floor:
1. Government imposes a lower limit on price (price floor) above equilibrium.
2. Firms want to supply more than consumers want to demand.
3. Excess supply arises in the market.
4. Government needs to buy the surplus to prevent prices from falling.

A 1, 2, 3, 4

B 2, 1, 3, 4

C 1, 3, 2, 4

D 4, 3, 2, 1

💡 Short Explanation

Government fixes a price floor. Producers increase supply while consumers reduce demand. Surplus is created. Government purchases the surplus to maintain the support price.

✅ Correct Answer Explanation

The correct sequence is: 1. Government imposes a price floor above equilibrium. 2. Producers are willing to supply more, while consumers demand less. 3. Excess supply (surplus) is created. 4. Government purchases the surplus to maintain the support price. Thus, the correct order is: 1 → 2 → 3 → 4 Therefore, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Incorrect because the price floor must be imposed before producers respond.
Option C → Incorrect because excess supply results after producers and consumers respond to the price floor.
Option D → Incorrect because it reverses the actual sequence of events.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Arrange the events according to the chronological market adjustment following a government-imposed price floor.

Final Logic:

Price Floor → More Supply → Surplus → Government Purchase.

🧠 Memory Trick

Floor → Surplus → Government Buys

📚 Class XII – Introductory Microeconomics – Chapter: Market Equilibrium – Topic: Price Support Programme and Excess Supply

11 Due to a leftward shift in the supply curve, excess demand causes some consumers to pay a higher price, which tends to increase the market price until the new equilibrium is attained at a ________ equilibrium quantity.

A higher

B lower

C unchanged

D zero

💡 Short Explanation

A leftward shift in supply reduces market supply. Excess demand pushes the price upward. The new equilibrium quantity is lower than before.

✅ Correct Answer Explanation

When the supply curve shifts leftward, producers supply less output at every price. At the original equilibrium price, qD > qS creating excess demand. Consumers compete for the reduced supply, causing the market price to increase. As the price rises: Quantity demanded decreases. Quantity supplied increases (movement along the new supply curve). The new equilibrium is characterized by: Higher equilibrium price Lower equilibrium quantity Therefore, the blank should be filled with "lower." Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect because a decrease in supply reduces equilibrium quantity.
Option C → Incorrect because quantity changes after the supply shift.
Option D → Incorrect because production does not fall to zero.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Recall the standard effect of a leftward supply shift on equilibrium.

Final Logic:

Supply ↓ → Price ↑ → Quantity ↓

🧠 Memory Trick

Supply ↓ = Price ↑, Quantity ↓

📚 Class XII – Introductory Microeconomics – Chapter: Market Equilibrium – Topic: Effect of Decrease in Supply

12 Match the Following shifts with their effect on price adjustment:

List I	List II
1. Demand shifts leftward	a. Excess supply causes firms to lower price; equilibrium quantity increases
2. Supply shifts rightward	b. Excess supply causes firms to lower price; equilibrium quantity decreases
3. Demand shifts rightward	c. Excess demand causes firms to raise price; equilibrium quantity increases
4. Supply shifts leftward	d. Excess demand causes firms to raise price; equilibrium quantity decreases

A 1-a, 2-b, 3-c, 4-d

B 1-a, 2-a, 3-c, 4-d

C 1-b, 2-a, 3-c, 4-d

D 1-b, 2-b, 3-c, 4-d

💡 Short Explanation

A decrease in demand lowers both price and quantity. An increase in supply lowers price but increases quantity. An increase in demand raises both price and quantity. A decrease in supply raises price but lowers quantity.

✅ Correct Answer Explanation

Evaluate each shift: Demand shifts leftward → Excess supply develops, firms lower prices, and equilibrium quantity decreases. 1 → b Supply shifts rightward → Excess supply develops, firms lower prices, and equilibrium quantity increases. 2 → a Demand shifts rightward → Excess demand develops, firms raise prices, and equilibrium quantity increases. 3 → c Supply shifts leftward → Excess demand develops, firms raise prices, and equilibrium quantity decreases. 4 → d Hence, the correct matching is: 1 → b 2 → a 3 → c 4 → d Therefore, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect because a leftward demand shift decreases, rather than increases, equilibrium quantity.
Option B → Incorrect because a leftward demand shift does not increase equilibrium quantity.
Option D → Incorrect because a rightward supply shift increases, rather than decreases, equilibrium quantity.

🎯 Strategy

Used

Option Grouping

Application:

Recall the standard outcomes of individual demand and supply shifts before matching each case.

Final Logic:

Only Option C correctly matches all four effects.

🧠 Memory Trick

Supply ↓ → Price ↑, Quantity ↓

📚 Class XII – Introductory Microeconomics – Chapter: Market Equilibrium – Topic: Price Adjustment due to Demand and Supply Shifts

13 Which of the following statements about the 'Invisible Hand' concept in perfect competition are correct?
I. It requires active government intervention to change prices.
II. It raises prices in case of excess demand.
III. It lowers prices in case of excess supply.

A I and II only

B I and III only

C II only

D II and III only

💡 Short Explanation

The Invisible Hand works through market forces. Excess demand pushes prices upward. Excess supply pushes prices downward.

✅ Correct Answer Explanation

According to Adam Smith's Invisible Hand, competitive markets adjust automatically through the interaction of demand and supply without the need for government intervention. Statement I is incorrect. The Invisible Hand is based on market forces, not active government intervention. Statement II is correct. Excess demand causes buyers to compete, leading to a rise in price. Statement III is correct. Excess supply causes sellers to compete, leading to a fall in price. Thus, only Statements II and III are correct. Therefore, Option D is the correct answer.

❓ Why Other Options Are Incorrect

Option A → Incorrect because Statement I is false.
Option B → Incorrect because Statement I is false.
Option C → Incorrect because Statement III is also correct.

🎯 Strategy

Used

Elimination

Application:

Reject every option containing Statement I because the Invisible Hand operates without government intervention.

Final Logic:

Only Option D contains the correct combination of statements.

🧠 Memory Trick

Invisible Hand = Market, Not Government

📚 Class XII – Introductory Microeconomics – Chapter: Market Equilibrium – Topic: Invisible Hand

14 According to the text, what is the ultimate outcome of the process followed by the 'Invisible Hand'?

A It is able to reach the equilibrium.

B It permanently creates a black market.

C It creates continuous excess supply.

D It eliminates the need for consumers.

💡 Short Explanation

The Invisible Hand adjusts prices automatically. It removes excess demand and excess supply. The final outcome is market equilibrium.

✅ Correct Answer Explanation

The Invisible Hand refers to the automatic adjustment of market prices through the interaction of buyers and sellers. If excess demand exists, prices rise. If excess supply exists, prices fall. These adjustments continue until: qD = qS At this point, the market reaches equilibrium, where neither excess demand nor excess supply exists. Therefore, Option A correctly describes the ultimate outcome.

❓ Why Other Options Are Incorrect

Option B → Incorrect because the Invisible Hand does not create black markets.
Option C → Incorrect because the adjustment process eliminates excess supply rather than maintaining it.
Option D → Incorrect because consumers remain an essential part of the market.

🎯 Strategy

Used

Odd One Out

Application:

Identify the option that reflects the fundamental objective of market adjustment.

Final Logic:

The Invisible Hand always moves the market toward equilibrium.

🧠 Memory Trick

Invisible Hand → Balance

📚 Class XII – Introductory Microeconomics – Chapter: Market Equilibrium – Topic: Market Adjustment and Invisible Hand

15 If simultaneous shifts occur where demand shifts leftward and supply shifts rightward, the effect on equilibrium price is a definite ________, while the effect on equilibrium quantity is ________.

A Increase, decrease

B Decrease, indeterminate (may increase, decrease or remain unchanged)

C Decrease, increase

D Increase, indeterminate

💡 Short Explanation

A leftward demand shift lowers price. A rightward supply shift also lowers price. Quantity depends on the relative magnitudes of the two shifts.

✅ Correct Answer Explanation

When: Demand shifts leftward, the equilibrium price decreases and equilibrium quantity decreases. Supply shifts rightward, the equilibrium price decreases and equilibrium quantity increases. Since both shifts reduce price, the equilibrium price definitely decreases. However, the effect on equilibrium quantity is uncertain: If the increase in supply is larger than the decrease in demand, quantity increases. If the decrease in demand is larger, quantity decreases. If both shifts are equal, quantity remains unchanged. Therefore, the equilibrium quantity is indeterminate. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect because the effect on quantity is not always a decrease.
Option C → Incorrect because quantity does not always increase.
Option D → Incorrect because the price definitely decreases rather than increases.

🎯 Strategy

Used

Conceptual Elimination

Application:

Identify the common effect on price first, then recognize that opposite effects on quantity make it indeterminate.

Final Logic:

Both shifts lower price, but quantity depends on the relative size of the shifts.

🧠 Memory Trick

Demand ↓ + Supply ↑ = Price ↓, Quantity ?

📚 Class XII – Introductory Microeconomics – Chapter: Market Equilibrium – Topic: Simultaneous Shifts in Demand and Supply

16 Arrange the adjustment sequence when both demand and supply shift rightward:
1. Both curves shift rightward simultaneously.
2. Equilibrium quantity increases unambiguously.
3. Depending on the magnitude of the shifts, price may increase, decrease, or remain unchanged.
4. A new equilibrium is formed at a higher quantity.

A 2, 1, 3, 4

B 1, 3, 4, 2

C 1, 2, 3, 4

D 4, 3, 2, 1

💡 Short Explanation

Demand and supply shift right simultaneously. Equilibrium quantity definitely increases. Price depends on the relative magnitude of the two shifts. A new equilibrium is established.

✅ Correct Answer Explanation

When both the demand and supply curves shift rightward: 1. Both curves shift rightward simultaneously. 2. Equilibrium quantity definitely increases. 3. The effect on price depends on the relative magnitude of the shifts: If demand shifts more than supply, price increases. If supply shifts more than demand, price decreases. If both shifts are equal, price remains unchanged. 4. The market reaches a new equilibrium with a higher quantity. Thus, the correct sequence is: 1 → 2 → 3 → 4 Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect because the shifts must occur before the quantity changes.
Option B → Incorrect because the increase in quantity occurs before the final equilibrium is reached.
Option D → Incorrect because it reverses the chronological order.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Arrange the events according to the natural sequence of simultaneous demand and supply adjustments.

Final Logic:

Shift → Quantity increases → Price adjusts → New equilibrium.

🧠 Memory Trick

Both Right → Quantity ↑ Always

📚 Class XII – Introductory Microeconomics – Chapter: Market Equilibrium – Topic: Simultaneous Rightward Shifts of Demand and Supply

17 When analyzing simultaneous shifts diagrammatically, if the rightward shift in demand is perfectly offset in magnitude by a rightward shift in supply with regard to price, the new intersection point will result in a price that remains ________.

A higher

B unchanged

C lower

D negative

💡 Short Explanation

Demand tends to increase price. Supply tends to decrease price. Equal shifts offset each other's effect on price.

✅ Correct Answer Explanation

When both demand and supply shift rightward by equal magnitudes: The increase in demand pushes the equilibrium price upward. The increase in supply pushes the equilibrium price downward. If these two effects exactly offset each other, the equilibrium price does not change, although equilibrium quantity increases. Therefore, the new equilibrium price remains unchanged. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect because price increases only if the demand shift is relatively larger.
Option C → Incorrect because price decreases only if the supply shift is relatively larger.
Option D → Incorrect because market price cannot become negative under the given analysis.

🎯 Strategy

Used

Conceptual Elimination

Application:

Recognize that equal and opposite effects on price cancel each other.

Final Logic:

Equal demand and supply shifts leave the equilibrium price unchanged.

🧠 Memory Trick

Equal Push = Same Price

📚 Class XII – Introductory Microeconomics – Chapter: Market Equilibrium – Topic: Simultaneous Shifts in Demand and Supply

18 Match the Following terms to the free entry and exit equilibrium graph (Figure 5.5):

List I	List II
1. Horizontal price line	a. p₀ = minimum average cost (min AC)
2. Downward sloping curve	b. Market Demand (DD)
3. Upward sloping curve	c. Market Supply (SS)
4. Ushaped cost curve	d. Average Cost (AC) curve

A 1-a, 2-a, 3-c, 4-d

B 1-b, 2-a, 3-c, 4-d

C 1-a, 2-b, 3-c, 4-d

D 1-b, 2-b, 3-c, 4-d

💡 Short Explanation

The horizontal line represents the equilibrium price. Demand slopes downward. Supply slopes upward. Average Cost (AC) is U-shaped.

✅ Correct Answer Explanation

In NCERT Figure 5.5 (Long-run Equilibrium under Free Entry and Exit): The horizontal price line represents p₀ = Minimum Average Cost (Minimum AC). The downward-sloping curve represents the Market Demand (DD) curve. The upward-sloping curve represents the Market Supply (SS) curve. The U-shaped curve represents the Average Cost (AC) curve. Therefore, 1 → a 2 → b 3 → c 4 → d Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Incorrect because the horizontal line is not the demand curve.
Option C → Incorrect because the downward-sloping curve represents demand, not the equilibrium price.
Option D → Incorrect because the horizontal line cannot represent the demand curve.

🎯 Strategy

Used

Option Grouping

Application:

Recall the standard labels used in the NCERT free entry and exit equilibrium graph.

Final Logic:

Only Option A correctly matches all four graphical components.

🧠 Memory Trick

U = AC

📚 Class XII – Introductory Microeconomics – Chapter: Market Equilibrium – Topic: Long-Run Equilibrium Graph under Free Entry and Exit

📄 Passage

"Consider the example of a market for wheat such that the demand curve for wheat is given as follows: qD = 200 – p for 0 ≤ p ≤ 200. Assume that the market consists of identical firms. The supply curve of a single firm is given by qSf = 10 + p for p ≥ 20. The free entry and exit of firms would mean that the firms will never produce below minimum average cost... The equilibrium price is p0 = 20."

According to the passage, why do firms never produce below the minimum average cost?

A Government bans it.

B They earn supernormal profits below it.

C They want to increase the price ceiling.

D They will incur a loss from production and will exit the market.

💡 Short Explanation

Firms avoid production below minimum average cost. Producing below this level leads to losses. Loss-making firms eventually exit the market.

✅ Correct Answer Explanation

According to NCERT, under free entry and exit, firms cannot survive in the long run if the market price is below the Minimum Average Cost (Minimum AC). If Price < Minimum Average Cost firms cannot recover all their production costs and therefore incur losses. As a result, firms leave the industry. The process continues until long-run equilibrium is reached, where Price = Minimum Average Cost (Minimum AC) Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect because there is no government prohibition involved.
Option B → Incorrect because firms incur losses, not supernormal profits, below minimum average cost.
Option C → Incorrect because firms have no objective of increasing a price ceiling in perfect competition.

🎯 Strategy

Used

Elimination

Application:

Recall the long-run equilibrium condition where firms remain in the market only if they earn at least normal profit.

Final Logic:

Losses below minimum average cost force firms to exit the market.

🧠 Memory Trick

Below Min AC → Loss → Exit

📚 Class XII – Introductory Microeconomics – Chapter: Market Equilibrium – Topic: Free Entry and Exit – Long-Run Equilibrium

📄 Passage

Based on the passage, if p0 = 20, what is the equilibrium quantity of wheat (q0)?

A 20

B 160

C 180

D 200

💡 Short Explanation

Equilibrium price is given as ₹20. Substitute the price into the market demand equation. The resulting equilibrium quantity is 180.

✅ Correct Answer Explanation

The passage gives the market demand equation: qD = 200 − p The equilibrium price is: p₀ = 20 Substitute the equilibrium price into the demand equation: q₀ = 200 − 20 = 180 Since the market clears at equilibrium, qD = qS = q₀ = 180 Therefore, the equilibrium quantity of wheat is 180. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect because 20 is the equilibrium price, not the equilibrium quantity.
Option B → Incorrect because 160 would correspond to a price of ₹40, not ₹20.
Option D → Incorrect because it ignores the substitution of the equilibrium price into the demand equation.

🎯 Strategy

Used

Substitution

Application:

Substitute the given equilibrium price into the market demand equation.

Final Logic:

qD = 200 − p
p₀ = 20
Therefore,
q₀ = 180

🧠 Memory Trick

Given p₀ → Substitute → Find q₀

📚 Class XII – Introductory Microeconomics – Chapter: Market Equilibrium – Topic: Algebraic Determination of Equilibrium Quantity under Free Entry and Exit

CUET UG Booster Economics 5 Test (D2)

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