In the Figure Given Below, D₁ and S₁ Are the Initial

question 23

Multiple Choice

In the figure given below, D₁ and S₁ are the initial demand and supply curves for a commodity in the market.Figure 3.3

-Refer to Figure 3.3. If the change in the demand in this market occurred before the change in supply, then starting from the initial equilibrium:

• A) firms would experience a fall in profits and then a gradual increase in profits after the change in supply occurred.
• B) there would be an immediate shortage, lasting until the price reaches P₂.
• C) price would change from P₁ to P₂ after the change in demand and would change again from P₃ to P₄ after the change in supply.
• D) there would be a surplus until the price reaches P₄.
• E) there would be a surplus even after price reaches P₄.

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Definitions:

Marginal Rate

A term that often refers to the marginal rate of substitution in economics, which measures the rate at which a consumer can give up some amount of one good in exchange for another good while maintaining the same level of utility.

Technical Substitution

The process of replacing one set of input variables or resources with another set, in production processes, to achieve a similar level of output. This reflects the firm’s ability to adapt to changes in resource availability or cost.

Isoquant

A curve on a graph representing combinations of inputs that yield the same level of output.

MRTS

The Marginal Rate of Technical Substitution, the rate at which one input can be replaced by another while keeping output constant.