Tag: price mechanism and solutions

Questions Related to price mechanism and solutions

Tastes and preferences of the consumers are reflected through the market in the form of prices they are ____________.

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

  1. forced to pay

  2. required to pay

  3. willing to pay

  4. either A or C

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Correct Option: C
Explanation:

The consumers demand only those goods from which they are able to derive proper utility against which they pay prices. Therefore, if consumers taste and preference for the commodity is high they will derive more utility out of it and they will pay more price for it. 

Factor income reflects the value of the resources provided by the factor of production.

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

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Correct Option: A
Explanation:

In price mechanism, factor income directs the flow of factors of production in the market as if the income rises, the supply of the factors increases and if the income decreases, the supply of the factors decreases.

Price mechanism is useful in determining the ___________.

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

  1. social changes

  2. GDP growth rate

  3. techniques of production

  4. both A & C

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Correct Option: C
Explanation:
The central problem of "How to produce?" which is faced by the economy where the economy consider either labour intensive techniques or capital intensive techniques for the production of goods and services in the economy depending upon the available resources in the economy which is easily solved in a price mechanism economy as resources are utilized here depending upon the demand and supply of commodities in the market. 

Factors of production are paid according to their contribution to the output sold.

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

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Correct Option: B
Explanation:

Factor of production contributes to the production of output and not to the marketing or selling of output. Therefore they are paid according to the number of units of output produced and not according to how many output sold. 

Distribution of total goods and services depends on the distribution of _________.

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

  1. goods demanded

  2. income

  3. wealth and savings

  4. money inherited

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Correct Option: B
Explanation:

In a free enterprise economy, prices of commodities in the market are affected by the forces of demand and supply that generates open competition in the market which leads distribution of goods and services according to the purchasing power of an individual which depends on the distribution of income. 

___________ is determined through price mechanism in the factor market.

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

  1. Factor interest

  2. Factor income

  3. Factor wealth

  4. Factor investment

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Correct Option: B
Explanation:

In price mechanism, factor income directs the flow of factors of production in the market as if the income rises, the supply of the factors increases and if the income decreases, the supply of the factors decreases. 

Factor incomes are used by the factors of production to purchase goods and services, which determines the distribution of the output produced.

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

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Correct Option: A
Explanation:

Factor income directs the flow of factors of production in the market but it also contributes to the consumption expenditure or aggregate demand in the economy as if factor income increases the aggregate demand also increases and if factor income decreases the aggregate demand also decreases. 

Under price mechanism, resources are directed to the production of luxuries than necessities, since the rich who demand luxury have a higher ability to pay.

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: A
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. This leads to distribution of goods and services according to the purchasing power of the individuals which brings inequality in the distribution channel. Therefore, only those goods are produced which are in high demand like luxurious goods etc. 

The price mechanism has the advantage of preserving the freedom of various economic agents in the 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. True

  2. False

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Correct Option: A
Explanation:

Price mechanism is also know as free enterprise mechanism as here the flow of goods and services in the market is directed by the supply of the production sector and purchase by the demand sector. Therefore all the economic agents are free here with mutually interdependent relations. 

Price mechanism acts as a coordinating and organising force in a free-enterprise 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. True

  2. False

Show answer
Correct Option: A
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, it coordinates and organize activities in a free enterprise economy.