MULTIPLE-CHOICE QUESTIONS WITH ANSWERS

MULTIPLE-CHOICE QUESTIONS WITH ANSWERS RELATED TO PRICE MECHANISM

What is the primary function of the price mechanism in an economy?
a) To regulate government policies
b) To distribute resources efficiently
c) To control inflation
d) To increase government revenue
Answer: b) To distribute resources efficiently

Which of the following is NOT a determinant of the price mechanism?
a) Supply
b) Demand
c) Government regulations
d) Consumer preferences
Answer: c) Government regulations

If there is an increase in the supply of a product and no change in demand, what is likely to happen to the price?
a) Increase
b) Decrease
c) Remain the same
d) Fluctuate randomly
Answer: b) Decrease

When both demand and supply increase simultaneously, what happens to the equilibrium price?
a) It decreases
b) It increases
c) It remains the same
d) It fluctuates irregularly
Answer: c) It remains the same

What effect does a decrease in production costs have on the supply curve?
a) Shifts it leftward
b) Shifts it rightward
c) Causes no change
d) Makes it steeper
Answer: b) Shifts it rightward

If consumers expect the price of a product to rise in the future, what impact does this have on the current demand?
a) Increase in demand
b) Decrease in demand
c) No change in demand
d) Fluctuation in demand
Answer: a) Increase in demand

Which of the following factors does NOT affect the elasticity of demand?
a) Availability of substitutes
b) Necessity of the product
c) Income level of consumers
d) Government regulations
Answer: d) Government regulations

In a market where there is a shortage, what is likely to happen to the price?
a) Increase
b) Decrease
c) Remain unchanged
d) Become volatile
Answer: a) Increase

When does a surplus occur in a market?
a) When demand exceeds supply
b) When supply exceeds demand
c) When both demand and supply decrease
d) When the equilibrium price is reached
Answer: b) When supply exceeds demand

Which factor would most likely cause a shift in the demand curve for a product?
a) Change in the price of a related product
b) Change in the cost of production
c) Change in government regulations
d) Change in the number of producers
Answer: a) Change in the price of a related product

What happens to the equilibrium quantity if both demand and supply increase?
a) Increases
b) Decreases
c) Remains the same
d) Becomes unpredictable
Answer: c) Remains the same

How does an increase in population generally affect demand?
a) Increases demand
b) Decreases demand
c) Has no effect on demand
d) Depends on income levels
Answer: a) Increases demand

What is likely to happen if there is a decrease in the price of a complementary product?
a) Increase in demand for the main product
b) Decrease in demand for the main product
c) No change in demand for the main product
d) Fluctuation in demand for the main product
Answer: a) Increase in demand for the main product

How does an increase in income affect the demand for normal goods?
a) Increases demand
b) Decreases demand
c) Has no effect on demand
d) Causes a shift in supply
Answer: a) Increases demand

Which factor is NOT a determinant of supply?
a) Technology
b) Taxes
c) Cost of production
d) Consumer preferences
Answer: d) Consumer preferences

What happens to the equilibrium price and quantity if demand increases and supply decreases?
a) Price increases, quantity decreases
b) Price decreases, quantity increases
c) Price and quantity both increase
d) Price and quantity both decrease
Answer: c) Price and quantity both increase

If the government imposes a price floor above the equilibrium price, what is the likely result?
a) Surplus
b) Shortage
c) No impact on the market
d) Equilibrium price
Answer: a) Surplus

What does an elastic demand curve indicate?
a) Small change in price causes a large change in quantity demanded
b) Large change in price causes a small change in quantity demanded
c) Price and quantity demanded are not related
d) Demand curve is perfectly vertical
Answer: a) Small change in price causes a large change in quantity demanded

What happens to the equilibrium quantity if both demand and supply increase?
a) Increases
b) Decreases
c) Remains the same
d) Becomes unpredictable
Answer: c) Remains the same

How does an increase in population generally affect demand?
a) Increases demand
b) Decreases demand
c) Has no effect on demand
d) Depends on income levels
Answer: a) Increases demand

How does an increase in income affect the demand for normal goods?
a) Increases demand
b) Decreases demand
c) Has no effect on demand
d) Causes a shift in supply
Answer: a) Increases demand

Which factor is NOT a determinant of supply?
a) Technology
b) Taxes
c) Cost of production
d) Consumer preferences
Answer: d) Consumer preferences

If the government imposes a price floor above the equilibrium price, what is the likely result?
a) Surplus
b) Shortage
c) No impact on the market
d) Equilibrium price
Answer: a) Surplus

How does an increase in the price of raw materials affect the supply curve?
a) Shifts it leftward
b) Shifts it rightward
c) Causes no change
d) Makes it steeper
Answer: a) Shifts it leftward

What factor would most likely lead to an increase in the elasticity of demand for a product?
a) Fewer substitutes available
b) The product is a necessity
c) Consumers spend a small portion of their income on the product
d) The product has limited uses
Answer: c) Consumers spend a small portion of their income on the product

How does a decrease in the price of a substitute affect the demand for a product?
a) Increases demand
b) Decreases demand
c) No change in demand
d) Causes a shift in the supply curve
Answer: b) Decreases demand

Which factor is NOT a determinant of demand?
a) Price of the product
b) Income of consumers
c) Cost of production
d) Consumer preferences
Answer: c) Cost of production

What effect does an increase in taxes have on the supply curve?
a) Shifts it leftward
b) Shifts it rightward
c) Causes no change
d) Makes it steeper
Answer: a) Shifts it leftward

How does a decrease in the price of a product affect the quantity supplied?
a) Increases quantity supplied
b) Decreases quantity supplied
c) Causes no change in quantity supplied
d) Leads to a shortage
Answer: b) Decreases quantity supplied

When there is excess demand in a market, what tends to happen to the price?
a) It decreases
b) It increases
c) It remains unchanged
d) It fluctuates erratically
Answer: b) It increases

What effect does an increase in the price of a product have on the quantity demanded?
a) Increases quantity demanded
b) Decreases quantity demanded
c) Causes no change in quantity demanded
d) Leads to a surplus
Answer: b) Decreases quantity demanded

How does an increase in the price of substitute goods affect the demand curve?
a) Shifts it leftward
b) Shifts it rightward
c) Causes no change
d) Makes it steeper
Answer: b) Shifts it rightward

What happens to the equilibrium price and quantity when demand decreases and supply increases?
a) Price increases, quantity decreases
b) Price decreases, quantity increases
c) Price and quantity both decrease
d) Price and quantity both increase
Answer: b) Price decreases, quantity increases

If the price of a product increases and there is no change in demand, what is likely to happen?
a) Decrease in supply
b) Increase in supply
c) Shift in the demand curve
d) Movement along the supply curve
Answer: b) Increase in supply

What factor is NOT typically a determinant of supply?
a) Cost of raw materials
b) Technology
c) Consumer preferences
d) Taxes and subsidies
Answer: c) Consumer preferences

If the government imposes a price ceiling below the equilibrium price, what is the likely outcome?
a) Surplus
b) Shortage
c) Equilibrium price
d) No impact on the market
Answer: b) Shortage

How does an increase in the number of producers affect the supply curve?
a) Shifts it leftward
b) Shifts it rightward
c) Causes no change
d) Makes it steeper
Answer: b) Shifts it rightward

When demand is inelastic, what happens to total revenue if price increases?
a) Increases
b) Decreases
c) Remains the same
d) Becomes unpredictable
Answer: a) Increases

Which factor does NOT influence the elasticity of supply?
a) Availability of resources
b) Time horizon
c) Government regulations
d) Technology
Answer: c) Government regulations

How does an increase in the price of a product affect consumer surplus?
a) Increases consumer surplus
b) Decreases consumer surplus
c) Causes no change in consumer surplus
d) Eliminates consumer surplus
Answer: b) Decreases consumer surplus

What happens to the equilibrium price and quantity if demand decreases and supply remains constant?
a) Price decreases, quantity decreases
b) Price decreases, quantity increases
c) Price and quantity both decrease
d) Price and quantity both increase
Answer: a) Price decreases, quantity decreases

How does an increase in the price of a normal good affect consumer demand?
a) Increases demand
b) Decreases demand
c) No change in demand
d) Leads to a surplus
Answer: b) Decreases demand

If there is an increase in consumer income and the good is an inferior good, what happens to demand?
a) Increases
b) Decreases
c) Remains the same
d) Becomes unpredictable
Answer: b) Decreases

What happens to the supply curve if there is an improvement in production technology?
a) Shifts it leftward
b) Shifts it rightward
c) Causes no change
d) Makes it steeper
Answer: b) Shifts it rightward

How does a decrease in the price of a complementary good affect demand?
a) Increases demand
b) Decreases demand
c) No change in demand
d) Causes a shift in the supply curve
Answer: a) Increases demand

How does an increase in production costs affect the supply curve?
a) Shifts it leftward
b) Shifts it rightward
c) Causes no change
d) Makes it steeper
Answer: a) Shifts it leftward

What happens to the equilibrium price and quantity if supply increases while demand remains constant?
a) Price decreases, quantity decreases
b) Price decreases, quantity increases
c) Price and quantity both decrease
d) Price and quantity both increase
Answer: d) Price and quantity both increase

How does a decrease in the price of a product affect consumer surplus?
a) Increases consumer surplus
b) Decreases consumer surplus
c) Causes no change in consumer surplus
d) Eliminates consumer surplus
Answer: a) Increases consumer surplus

Which factor does NOT typically affect the elasticity of demand?
a) Availability of substitutes
b) Time horizon
c) Income level of consumers
d) Government regulations
Answer: d) Government regulations

If the government imposes a subsidy on a product, what happens to the supply curve?
a) Shifts it leftward
b) Shifts it rightward
c) Causes no change
d) Makes it steeper
Answer: b) Shifts it rightward

How does an increase in consumer preferences for a specific product affect demand?
a) Increases demand
b) Decreases demand
c) No change in demand
d) Causes a shift in the supply curve
Answer: a) Increases demand

What happens to the equilibrium price and quantity if both demand and supply decrease?
a) Price decreases, quantity decreases
b) Price decreases, quantity increases
c) Price and quantity both decrease
d) Price and quantity both increase
Answer: c) Price and quantity both decrease

If a product is considered a luxury good, what effect does an increase in income have on its demand?
a) Increases demand
b) Decreases demand
c) No change in demand
d) Causes a surplus
Answer: a) Increases demand

How does an increase in the price of a complementary good affect demand?
a) Increases demand
b) Decreases demand
c) No change in demand
d) Causes a shift in the supply curve
Answer: b) Decreases demand

What happens to the supply curve if there is a decrease in the cost of production?
a) Shifts it leftward
b) Shifts it rightward
c) Causes no change
d) Makes it steeper
Answer: b) Shifts it rightward

How does an increase in consumer income affect the demand for inferior goods?
a) Increases demand
b) Decreases demand
c) No change in demand
d) Causes a surplus
Answer: b) Decreases demand

What happens to the equilibrium price and quantity if demand increases and supply remains constant?
a) Price increases, quantity decreases
b) Price increases, quantity increases
c) Price and quantity both decrease
d) Price and quantity both increase
Answer: b) Price increases, quantity increases

Which factor is NOT a determinant of supply elasticity?
a) Availability of resources
b) Time horizon
c) Government policies
d) Technology
Answer: c) Government policies

How does an increase in the price of a substitute good affect demand?
a) Increases demand
b) Decreases demand
c) No change in demand
d) Causes a shift in the supply curve
Answer: a) Increases demand

If consumers expect prices to fall in the future, what effect does this have on the current demand?
a) Increases demand
b) Decreases demand
c) No change in demand
d) Causes a surplus
Answer: b) Decreases demand

What happens to the equilibrium price and quantity if supply decreases while demand remains constant?
a) Price increases, quantity decreases
b) Price increases, quantity increases
c) Price and quantity both decrease
d) Price and quantity both increase
Answer: a) Price increases, quantity decreases

Which factor does NOT affect the elasticity of supply?
a) Availability of substitutes
b) Time horizon
c) Government regulations
d) Income level of consumers
Answer: d) Income level of consumers

If the price of a product decreases and there is no change in supply, what is likely to happen?
a) Decrease in demand
b) Increase in demand
c) Shift in the supply curve
d) Movement along the demand curve
Answer: b) Increase in demand

How does an increase in the price of a normal good affect consumer demand?
a) Increases demand
b) Decreases demand
c) No change in demand
d) Leads to a surplus
Answer: a) Increases demand

If both demand and supply decrease simultaneously, what happens to the equilibrium quantity?
a) Increases
b) Decreases
c) Remains the same
d) Fluctuates erratically
Answer: c) Remains the same

How does an increase in the price of a substitute good affect the demand curve?
a) Shifts it leftward
b) Shifts it rightward
c) Causes no change
d) Makes it steeper
Answer: a) Shifts it leftward

What happens to the equilibrium price and quantity if demand decreases and supply increases?
a) Price increases, quantity decreases
b) Price decreases, quantity increases
c) Price and quantity both decrease
d) Price and quantity both increase
Answer: b) Price decreases, quantity increases

Which factor does NOT affect the elasticity of demand?
a) Availability of substitutes
b) Time horizon
c) Government regulations
d) Production costs
Answer: d) Production costs

How does an increase in the number of consumers affect demand?
a) Increases demand
b) Decreases demand
c) Causes no change in demand
d) Leads to a surplus
Answer: a) Increases demand

What happens to the equilibrium price and quantity if supply decreases and demand remains constant?
a) Price increases, quantity decreases
b) Price increases, quantity increases
c) Price and quantity both decrease
d) Price and quantity both increase
Answer: a) Price increases, quantity decreases

How does a decrease in consumer income affect the demand for normal goods?
a) Increases demand
b) Decreases demand
c) No change in demand
d) Causes a surplus
Answer: b) Decreases demand

What happens to the supply curve if there is an increase in the availability of resources?
a) Shifts it leftward
b) Shifts it rightward
c) Causes no change
d) Makes it steeper
Answer: b) Shifts it rightward

If the price of a product increases and supply remains constant, what is likely to happen?
a) Increase in demand
b) Decrease in demand
c) Shift in the supply curve
d) Movement along the demand curve
Answer: d) Movement along the demand curve

How does an increase in the price of a normal good affect consumer surplus?
a) Increases consumer surplus
b) Decreases consumer surplus
c) Causes no change in consumer surplus
d) Eliminates consumer surplus
Answer: b) Decreases consumer surplus

What happens to the equilibrium price and quantity if both demand and supply increase?
a) Price increases, quantity decreases
b) Price decreases, quantity increases
c) Price and quantity both increase
d) Price and quantity both decrease
Answer: c) Price and quantity both increase

Which factor is NOT a determinant of supply elasticity?
a) Availability of resources
b) Time horizon
c) Government regulations
d) Consumer preferences
Answer: d) Consumer preferences

If the government imposes a subsidy on a product, what happens to the supply curve?
a) Shifts it leftward
b) Shifts it rightward
c) Causes no change
d) Makes it steeper
Answer: b) Shifts it rightward

How does an increase in consumer income affect the demand for inferior goods?
a) Increases demand
b) Decreases demand
c) No change in demand
d) Causes a surplus
Answer: b) Decreases demand

Which factor does NOT typically affect the elasticity of supply?
a) Availability of substitutes
b) Time horizon
c) Government policies
d) Income level of consumers
Answer: d) Income level of consumers

How does an increase in the price of a normal good affect consumer demand?
a) Increases demand
b) Decreases demand
c) No change in demand
d) Leads to a surplus
Answer: a) Increases demand

How does a decrease in production costs affect the supply curve?
a) Shifts it leftward
b) Shifts it rightward
c) Causes no change
d) Makes it steeper
Answer: b) Shifts it rightward

Which factor is NOT a determinant of supply elasticity?
a) Availability of resources
b) Time horizon
c) Government policies
d) Consumer income level
Answer: d) Consumer income level

How does an increase in the price of a substitute good affect demand?
a) Increases demand
b) Decreases demand
c) No change in demand
d) Causes a shift in the supply curve
Answer: b) Decreases demand

What happens to the equilibrium price and quantity if demand decreases and supply remains constant?
a) Price increases, quantity decreases
b) Price increases, quantity increases
c) Price and quantity both decrease
d) Price and quantity both increase
Answer: a) Price increases, quantity decreases

Which factor does NOT affect the elasticity of demand?
a) Availability of substitutes
b) Time horizon
c) Government regulations
d) Production costs
Answer: d) Production costs