Micro

Production & Costs

Easy

Comprehension:

Read the passage carefully and answer the questions based on the passage:

Demand and Technology

Consider the case of a local coffee shop that faces rising demand for its products. In response to the increase in demand, the shop owner decided to increase the price of a cup of coffee. As a result, suppliers in the market respond by increasing their supply, hoping to capitalize on the higher price. If the coffee shop invests in a new espresso machine that makes coffee more efficiently, the cost of producing each cup decreases. This leads to an increase in supply and sell more coffee at the same or lower price, benefiting both the producers and consumers. This cost-reduction technology is helpful in the context of the real world.

How does an increase in price affect supply?

It decreases the quantity supplied.

It does not affect the quantity supplied.

It increases the quantity supplied.

It decreases demand.

✅ Correct Option: 3

Option 1 -> Incorrect. Higher prices incentivize producers to supply more, not less.

Option 2 -> Incorrect. Price is a key determinant of quantity supplied according to the law of supply.

Option 3 -> Correct. According to the law of supply, there is a positive relationship between price and quantity supplied.

Option 4 -> Incorrect. This refers to demand, not supply. The question asks about the effect on supply.

Hence, Option 3: It increases the quantity supplied -> According to the law of supply, when the price of a good increases, producers are willing and able to supply more of that good to the market. This is because higher prices make production more profitable, encouraging suppliers to increase output. This creates an upward-sloping supply curve, showing the direct positive relationship between price and quantity supplied. -> correct

Question 41

Which of the following is an example of Cost-Reduction Technology in a business?

Question 42

In Microeconomics, what does supply refer to?

Question 43

In the above paragraph, which factor is affecting the supply of Coffee?

Question 44

What is the main purpose of Cost Reduction Technologies in business?

How does an increase in price affect supply?

Solution

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CUET Economics Past Year Questions (Topic-Wise)