MULTIPLE-CHOICE QUESTIONS WITH ANSWERS RELATED TO PRICE MECHANISM
What are the determinants of price mechanism?
a) Demand and supply only
b) Government regulations only
c) Demand, supply, and government regulations
d) Market size and consumer preferences
Answer: a) Demand and supply only
Which of the following is NOT a determinant of demand?
a) Income of consumers
b) Price of substitute goods
c) Population size
d) Cost of production
Answer: d) Cost of production
What does the law of demand state?
a) As price decreases, demand increases
b) As price increases, demand decreases
c) Demand and price have no relationship
d) Demand is always constant
Answer: b) As price increases, demand decreases
Which factor does NOT affect supply?
a) Price of the product
b) Cost of production
c) Government subsidies
d) Consumer preferences
Answer: d) Consumer preferences
What does the law of supply suggest?
a) As price increases, supply increases
b) As price decreases, supply decreases
c) Supply and price have no relationship
d) Supply is always constant
Answer: a) As price increases, supply increases
The equilibrium price is determined by:
a) Government regulations
b) The highest bidder
c) The intersection of demand and supply
d) Random fluctuations in the market
Answer: c) The intersection of demand and supply
What is the importance of the time element in price determination?
a) It affects consumer preferences
b) It influences the cost of production
c) It determines the speed of price adjustments
d) It has no impact on price determination
Answer: c) It determines the speed of price adjustments
Which of the following is an exception to the law of demand?
a) Giffen goods
b) Inferior goods
c) Normal goods
d) Substitute goods
Answer: a) Giffen goods
Which factor does NOT limit the law of supply?
a) Technological advancements
b) Resource scarcity
c) Government regulations
d) Consumer preferences
Answer: d) Consumer preferences
What happens if the price in the market is above the equilibrium price?
a) Excess demand
b) Excess supply
c) Equilibrium is reached
d) Market shuts down
Answer: a) Excess demand
What effect would a decrease in the price of raw materials used in production have on supply?
a) Increase in supply
b) Decrease in supply
c) No effect on supply
d) Increase in demand
Answer: a) Increase in supply
Which of the following is a determinant of market demand?
a) Producer preferences
b) Availability of credit
c) Consumer income
d) Government regulations
Answer: c) Consumer income
When demand and supply are equal, the market is said to be in:
a) Excess demand
b) Excess supply
c) Equilibrium
d) Disequilibrium
Answer: c) Equilibrium
Which of the following factors would NOT cause a shift in the demand curve?
a) Changes in consumer tastes and preferences
b) Changes in the price of complementary goods
c) Changes in technology
d) Changes in consumer income
Answer: c) Changes in technology
If the government imposes a price ceiling below the equilibrium price, what is likely to occur?
a) Excess demand
b) Excess supply
c) Equilibrium price remains unchanged
d) No impact on the market
Answer: a) Excess demand
What would cause a movement along the demand curve?
a) Change in consumer income
b) Change in consumer tastes
c) Change in the price of the product
d) Change in government regulations
Answer: c) Change in the price of the product
Which of the following statements is true regarding elasticity of demand?
a) Inelastic demand means that quantity demanded is highly responsive to price changes
b) Elastic demand means that quantity demanded is not affected by price changes
c) Unitary elastic demand means that quantity demanded changes proportionally to price changes
d) Elasticity of demand has no relation to price changes
Answer: c) Unitary elastic demand means that quantity demanded changes proportionally to price changes
What is the primary factor influencing the price elasticity of supply?
a) Availability of substitutes
b) Time horizon
c) Consumer preferences
d) Government regulations
Answer: b) Time horizon
Which of the following is an example of a complementary good?
a) Tea and coffee
b) Cars and bicycles
c) Butter and margarine
d) Pens and paper
Answer: b) Cars and bicycles
If the demand for a good is perfectly elastic, what does this imply?
a) Consumers are willing to pay any price for the good
b) Quantity demanded does not change with price changes
c) Quantity demanded changes infinitely with price changes
d) The good has no substitutes
Answer: c) Quantity demanded changes infinitely with price changes
What would cause a movement along the supply curve?
a) Change in consumer preferences
b) Change in production costs
c) Change in government regulations
d) Change in population size
Answer: b) Change in production costs
Which of the following is NOT a determinant of price elasticity of demand?
a) Availability of substitutes
b) Necessity of the good
c) Time horizon
d) Consumer income
Answer: d) Consumer income
If the price of a product increases by 10% and the quantity demanded decreases by 5%, what is the price elasticity of demand?
a) 0.5
b) 1
c) 2
d) 5
Answer: a) 0.5
If the price of a product decreases by 20% and the quantity demanded increases by 10%, what is the price elasticity of demand?
a) 0.5
b) 1
c) 1.5
d) 2
Answer: c) 1.5
Which of the following goods is likely to have a relatively inelastic demand?
a) Luxury cars
b) Bread
c) Diamonds
d) Designer clothing
Answer: b) Bread
What does a perfectly inelastic demand curve look like?
a) Horizontal line
b) Vertical line
c) U-shaped curve
d) Downward sloping curve
Answer: b) Vertical line
Which of the following is NOT a characteristic of a perfectly competitive market?
a) Many buyers and sellers
b) Homogeneous products
c) Perfect information
d) Price setting power for individual firms
Answer: d) Price setting power for individual firms
In a monopoly market structure, the demand curve is:
a) Horizontal
b) Vertical
c) Downward sloping
d) Upward sloping
Answer: c) Downward sloping
Which of the following is NOT a type of market failure?
a) Monopoly power
b) Externalities
c) Public goods
d) Perfect competition
Answer: d) Perfect competition
What is a public good?
a) Excludable and rivalrous
b) Non-excludable and rivalrous
c) Excludable and non-rivalrous
d) Non-excludable and non-rivalrous
Answer: d) Non-excludable and non-rivalrous
Which of the following is NOT a characteristic of a merit good?
a) Provides positive externalities
b) Consumers may not fully appreciate its benefits
c) It is non-rivalrous
d) Government intervention may be justified
Answer: c) It is non-rivalrous
What is the purpose of a price floor?
a) To create excess demand
b) To prevent prices from falling below a certain level
c) To increase consumer surplus
d) To promote competition
Answer: b) To prevent prices from falling below a certain level
Which of the following is NOT a potential consequence of imposing a price ceiling?
a) Excess demand
b) Black markets
c) Surplus production
d) Reduced quality of goods and services
Answer: c) Surplus production
Which market structure is characterized by a few large firms dominating the market?
a) Perfect competition
b) Monopoly
c) Monopolistic competition
d) Oligopoly
Answer: d) Oligopoly
What is a cartel?
a) A single seller dominating the market
b) A group of sellers colluding to control market prices
c) A market with many buyers and sellers
d) A market with homogeneous products
Answer: b) A group of sellers colluding to control market prices
What is the main feature of monopolistic competition?
a) Many buyers and sellers
b) Identical products
c) Product differentiation
d) Barriers to entry
Answer: c) Product differentiation
Which of the following is NOT a barrier to entry in a market?
a) Economies of scale
b) Government regulations
c) Perfect information
d) Brand loyalty
Answer: c) Perfect information
What is the main goal of antitrust laws?
a) To encourage monopolistic behavior
b) To prevent collusion among firms
c) To promote market concentration
d) To restrict consumer choices
Answer: b) To prevent collusion among firms
Which of the following is an example of a positive externality?
a) Pollution
b) Education
c) Traffic congestion
d) Noise pollution
Answer: b) Education
What is the tragedy of the commons?
a) Overuse of common resources due to lack of property rights
b) Lack of government intervention in the market
c) Excessive competition leading to market failure
d) Inefficient allocation of resources in a monopoly
Answer: a) Overuse of common resources due to lack of property rights
What is the primary determinant of the short-run supply curve?
a) Changes in production technology
b) Changes in input prices
c) Changes in consumer preferences
d) Changes in government regulations
Answer: b) Changes in input prices
Which of the following is NOT a factor affecting the long-run supply curve?
a) Changes in technology
b) Changes in production costs
c) Changes in consumer income
d) Changes in resource availability
Answer: c) Changes in consumer income
What is the slope of the demand curve in a perfectly competitive market?
a) Positive
b) Negative
c) Zero
d) Infinite
Answer: b) Negative
In a perfectly competitive market, what happens to price in the long run if firms are making economic profits?
a) Price remains the same
b) Price decreases
c) Price increases
d) Price is determined by government regulations
Answer: b) Price decreases
What is the primary factor influencing the elasticity of supply?
a) Availability of substitutes
b) Time horizon
c) Consumer preferences
d) Government regulations
Answer: b) Time horizon
What is the main characteristic of a natural monopoly?
a) High barriers to entry
b) Low barriers to entry
c) Many small firms in the market
d) Homogeneous products
Answer: a) High barriers to entry
Which of the following is an example of a negative externality?
a) Healthcare
b) Education
c) Pollution
d) Public parks
Answer: c) Pollution
What is the primary goal of price discrimination for a firm?
a) To increase consumer surplus
b) To decrease producer surplus
c) To capture consumer surplus
d) To eliminate competition
Answer: c) To capture consumer surplus
What is the main difference between a subsidy and a tax?
a) Subsidy increases market supply, while tax decreases market supply
b) Subsidy decreases market demand, while tax increases market demand
c) Subsidy decreases market supply, while tax increases market supply
d) Subsidy increases market demand, while tax decreases market demand
Answer: a) Subsidy increases market supply, while tax decreases market supply
Which of the following market structures is characterized by many firms selling differentiated products?
a) Perfect competition
b) Monopoly
c) Monopolistic competition
d) Oligopoly
Answer: c) Monopolistic competition
