Tag: price mechanism and solutions

Questions Related to price mechanism and solutions

Which of the following conditions are required for price mechanism to operate in an economy?

economics solution to basic economic problems under different economic systems supply curve and price determination in the market price mechanism and solutions supply

  1. Existence of competition

  2. No government intervention

  3. Mobility of resources

  4. All of the above

Show answer
Correct Option: D
Explanation:

Price mechanism refers to the mechanism where price directs the flow of goods and services in the market as it directs the supply by the production sector i.e supply will increase if price increases and vice-versa and the demand sector i.e demand will increase if price decreases and vice-versa. Therefore for price mechanism to operate smoothly, government intervention needs to be avoided with free flow of all the resources required for the production of the demanded commodities.  

Identify the conditions that are a pre-requisite for the price mechanism to operate.

economics solution to basic economic problems under different economic systems supply curve and price determination in the market price mechanism and solutions supply

  1. Cost should reflect the sacrifice made in terms of resources.

  2. Producers should be able to anticipate demand correctly.

  3. Demand should reflect needs of the people.

  4. All of the above

Show answer
Correct Option: D
Explanation:

Price mechanism refers to the mechanism where price directs the flow of goods and services in the market as it directs the supply by the production sector i.e supply will increase if price increases and vice-versa and the demand sector i.e demand will increase if price decreases and vice-versa. Therefore, price mechanism will operate only when the producer sector will efficiently anticipate the demand by the needs of the people and supply the commodities where cost in the generation of the commodities must be reflected in terms of opportunity cost. 

Price mechanism will operate only when the market is regulated by the government.

economics solution to basic economic problems under different economic systems supply curve and price determination in the market price mechanism and solutions supply

  1. True

  2. False

Show answer
Correct Option: B
Explanation:
Price mechanism refers to the mechanism where price directs the flow of goods and services in the market as it directs the supply by the production sector i.e supply will increase if price increases and vice-versa and the demand by the consumer sector i.e demand will increase if price decreases and vice-versa. Therefore for price mechanism to operate, the market should be free from all types of interventions

Producers compete with each other in capitalist economy to produce those goods and services which yield _________.

economics solution to basic economic problems under different economic systems supply curve and price determination in the market price mechanism and solutions supply

  1. no profits

  2. higher profits

  3. lower profits

  4. no loss

Show answer
Correct Option: B
Explanation:

Capitalist economy has private ownership where utilization of resources takes place for private gains therefore in this kind of economy only those goods are produced which are in high demand in the market which is leads to open competition in the market where all the producer compete with each other to yield higher profits. 

Who determines what will be produced in a capitalist economy which is reflected by their spending pattern?

economics solution to basic economic problems under different economic systems supply curve and price determination in the market price mechanism and solutions supply

  1. Consumers

  2. Banks

  3. Government

  4. None of the above

Show answer
Correct Option: A
Explanation:

Capitalist economy has private ownership where utilization of resources takes place for private gains. Therefore in this kind of economy only those goods are produced which are in high demand in the market which is directly governed by the consumers. 

The cost of a commodity should reflect the sacrifice made by the ___________ in terms of resources used in the production process.

economics solution to basic economic problems under different economic systems supply curve and price determination in the market price mechanism and solutions supply

  1. consumer

  2. individual

  3. producer

  4. society

Show answer
Correct Option: D
Explanation:

The cost of a commodity should always be reflected in terms of opportunity cost where the cost of the commodities supplied in the market should be reflected in terms of sacrifice of the resources of the society which are the next best alternative in the production process. 

Misallocation of resources could take place in a free-enterprise economy due to which of the following?

economics solution to basic economic problems under different economic systems supply curve and price determination in the market price mechanism and solutions supply

  1. Incorrect anticipation of demand.

  2. Costs reflecting sacrifice of the producer only.

  3. Needs not being adequately reflected in demand.

  4. All of the above

Show answer
Correct Option: D
Explanation:
Misallocation of resources could take place in a free-enterprise economy due to which of the following :-a) Incorrect anticipation of demand.
b) Costs reflecting sacrifice of the producer only.
c) Needs not being adequately reflected in demand.
Allocation of resources in the market is often not done properly due to the above mentioned factors and as a result, it does not leads to the maximization of profits and satisfaction.

Consumer is regarded as a ____________ in a market economy.

economics solution to basic economic problems under different economic systems supply curve and price determination in the market price mechanism and solutions supply

  1. slave

  2. sovereign

  3. either A or B

  4. neither A nor B

Show answer
Correct Option: B
Explanation:

Consumer is regarded as a sovereign in a market economy since it is believed that the supreme power to control market lies in the hands of the consumers. Consumer is the king pin of the market.In a market economy, prices of the commodities in the market are affected by the forces of demand and supply which depends upon the purchasing power of the consumer that generates open competition in the market. Therefore, consumers are known as sovereign in the market.

___________ are determined in the labour market by the demand for and the supply of labour force.

economics solution to basic economic problems under different economic systems supply curve and price determination in the market price mechanism and solutions supply

  1. Wages

  2. Rent

  3. Interest

  4. Profit

Show answer
Correct Option: A
Explanation:

In a labour market, wages of the labour are decided on the demand and supply of the labour as if the demand of the labour increases their price also increases and vice-versa whereas if supply of the labour increases their price decreases and vice-versa. 

Producers will __________ the available resources when a change in price, and thus, a change in the profit, occurs.

economics solution to basic economic problems under different economic systems supply curve and price determination in the market price mechanism and solutions supply

  1. reallocate

  2. rearrange

  3. return

  4. arrange

Show answer
Correct Option: A
Explanation:

In Price mechanism price directs the flow of goods and services in the market as it directs the supply by the production sector i.e supply will increase if price increases and vice-versa and the demand sector i.e demand will increase if price decreases and vice-versa. Therefore if there is any changes in the price, the available resource also changes which is reflected inthe profit margin.