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MULTIPLE-CHOICE QUESTIONS WITH ANSWERS RELATED TO PRICE MECHANISM

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

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