Class 9 The Price Puzzle: What Drives the Market Mock Test (CBSE)

Topics in The Price Puzzle: What Drives the Market

• Demand and its determinants
• Supply and its determinants
• Market equilibrium
• Role of government in the economy
• Regulation of unfair practices
• Public goods
• Limits of government intervention

The Price Puzzle: What Drives the Market practice questions with answers

1. Q1Multiple choice·1 mark
   Suppose that in the market for locally produced organic honey, consumer disposable incomes rise while simultaneously the cost of bee feed increases. Assuming organic honey is a normal good, what will be the definitive effect on the equilibrium price and equilibrium quantity?

   1. (a)Equilibrium price definitely increases; equilibrium quantity change is indeterminate.
   2. (b)Equilibrium price definitely decreases; equilibrium quantity definitely decreases.
   3. (c)Equilibrium quantity definitely increases; equilibrium price change is indeterminate.
   4. (d)Equilibrium price and quantity both definitely increase.
   Show answer and step marks

   1. Correct option: (a). A rise in consumer income for a normal good shifts demand right (increasing price and quantity), while rising feed costs shift supply left (increasing price and decreasing quantity). The net effect is a definite increase in equilibrium price and an indeterminate change in quantity.+1

   Answer: (a)
2. Q2Multiple choice·1 mark
   A government imposes a legally binding price ceiling (maximum price) below the market equilibrium price for essential food grains to protect consumers. Which of the following secondary market distortions is most likely to emerge as a direct consequence?

   1. (a)Persistent market surplus leading to distress sales by producers
   2. (b)Emergence of black markets and non-price rationing such as long queues
   3. (c)A sharp increase in overall market supply by incentivizing new producers
   4. (d)Elimination of all deadweight losses in the agricultural sector
   Show answer and step marks

   1. Correct option: (b). A binding price ceiling creates excess demand (shortage) because quantity demanded exceeds quantity supplied at the legal maximum price, frequently leading to black markets and non-price rationing mechanisms like queues.+1

   Answer: (b)
3. Q3Assertion and reason·1 mark
   Assertion (A): An increase in market demand for a product causes its equilibrium price to rise, provided supply remains constant. Reason (R): Market equilibrium is established at the intersection of demand and supply curves where quantity demanded equals quantity supplied.

   1. (a)Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
   2. (b)Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of Assertion (A).
   3. (c)Assertion (A) is true but Reason (R) is false.
   4. (d)Assertion (A) is false but Reason (R) is true.
   Show answer and step marks

   1. Correct option: (b) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of Assertion (A). Determine that an increase in demand creates a temporary shortage at the original price, pushing the price up towards a new equilibrium where demand equals supply. Both statements are true, but Reason defines market equilibrium generally rather than explaining the specific directional shift caused by demand change.+1

   Answer: (b)
4. Q4Multiple choice·1 mark
   Which of the following events will cause a decrease in the supply of wheat?

   1. (a)An increase in the wages of agricultural farm laborers
   2. (b)A decrease in the price of chemical fertilizers used in wheat farming
   3. (c)An improvement in agricultural technology for harvesting wheat
   4. (d)A subsidy provided by the government to wheat farmers
   Show answer and step marks

   1. Correct option: (a) An increase in the wages of agricultural farm laborers+1

   Answer: (a)
5. Q5Short answer·2 marks
   Analyze how a binding price ceiling set below the equilibrium price creates a market shortage.
   Show answer and step marks

   1. A price ceiling below equilibrium holds the price down, so the quantity demanded rises as consumers want to buy more at the lower price.+1
   2. At that low price producers offer less, so the quantity supplied falls; quantity demanded now exceeds quantity supplied, creating a shortage.+1

   Answer: It increases quantity demanded while decreasing quantity supplied, leading to a market shortage.
6. Q6Short answer·3 marks
   Why is the regulation of unfair trade practices necessary in a market economy? Explain any three such practices that governments typically monitor or penalize.
   Show answer and step marks

   1. Necessity, any one of: unfair practices let sellers cheat or overcharge consumers, so regulation protects consumer rights; they let a few firms push out honest competitors, so regulation keeps competition fair; they hide true prices and quality, so regulation keeps the market transparent; or any other valid reason.+1.5
   2. First practice, any one of: hoarding goods to create artificial scarcity and push up prices; adulterating goods with cheaper or harmful substances; misleading advertisements making false claims about a product; price-fixing by firms acting together as a cartel; using false weights and measures or charging more than the printed MRP; or any other valid unfair practice, explained.+0.5
   3. Second practice, a different one from the same list.+0.5
   4. Third practice, a different one from the same list.+0.5

   Answer: Regulation protects consumers from being cheated or overcharged and keeps competition fair. Any three of: hoarding to create artificial scarcity and raise prices; adulteration of goods; misleading advertisements with false claims; price-fixing by cartels; false weights and measures or charging above the MRP.

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