Skip to content

CA Foundation · Business Economics · Nature and Scope of Business Economics

Heavy rain destroys a large part of the tomato crop in Karnataka, and wholesale tomato prices in Bengaluru rise sharply. In a market economy, the most appropriate role of this price rise is to:

The price rise signals scarcity, encourages suppliers to bring tomatoes from other areas, and rations the reduced stock to buyers who value it most. It is a movement along the demand curve, not a permanent fall in demand, and does not imply monopoly or government price fixing.

  1. ASignal scarcity, encourage more supply and ration limited stock to buyers who value it mostCorrect
  2. BPermanently reduce the demand curve for tomatoes
  3. CIndicate that tomato producers have turned into monopolists
  4. DShow that the government has fixed the price

Explanation

The price mechanism rations scarce goods by letting those with higher willingness to pay buy, and it gives producers an incentive to bring in more supply from other regions. The price rise is a movement along the demand curve, not a permanent shift of it. Nothing indicates monopoly or administered pricing.

Did you get it right without looking?

One question tells you little. A timed set on Nature and Scope of Business Economics shows your real accuracy, how long you take and where you lose marks.

Practise Nature and Scope of Business EconomicsFree diagnostic mock

More Nature and Scope of Business Economics questions