Economics · General Awareness

Economics Concepts and Theories

1,657 Questions

Review fundamental and advanced economics concepts through this structured question bank. The topics include macroeconomics, fiscal policy, international trade theories, and economic regulation. These questions are ideal for candidates preparing for civil services and other administrative competitive examinations.

Macroeconomics fundamentalsInternational trade theoriesFiscal policy debatesEconomic regulationLabor theory of value

Economics Concepts and Theories Questions

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

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

  1. Consumers

  2. Banks

  3. Government

  4. None of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
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. 

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

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

  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
Reveal answer Fill a bubble to check yourself
D Correct answer
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.

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

Price mechanism is useful in determining the ___________.

  1. social changes

  2. GDP growth rate

  3. techniques of production

  4. both A & C
Reveal answer Fill a bubble to check yourself
C Correct answer
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. 
Multiple choice economics solution to basic economic problems under different economic systems supply curve and price determination in the market price mechanism and solutions supply

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

  1. goods demanded

  2. income

  3. wealth and savings

  4. money inherited
Reveal answer Fill a bubble to check yourself
B Correct answer
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. 

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

___________ is determined through price mechanism in the factor market.

  1. Factor interest

  2. Factor income

  3. Factor wealth

  4. Factor investment
Reveal answer Fill a bubble to check yourself
B Correct answer
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. 

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

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.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
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. 

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

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

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
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. 

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

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

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
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. 

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

According to __________, the invisible hand of price mechanism ensures that while promoting their self-interest, individuals promote social welfare as well.

  1. Alfred Marshall

  2. A.C. Pigou

  3. Adam Smith

  4. J.M. Keynes
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Adam Smith was a Scottish economist who emphasized on price mechanism as a invisible hand that aims at both economical i.e. personal gains as well as social i.e. human gains welfare as it is not influenced by any intervention from any party not involved. 

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

Free operation of price mechanism leads to inequalities in the distribution of income and wealth.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Producers produce goods and service for them who have large money power. Thus, the price mechanism cannot ensure social justice rather it widens inequality in the distribution of income and wealth the rich get richer and the poor poorer. 

Price solves the problem of what to produce and in what quantities. There are unlimited wants but there is a scarcity of productive resources. If the price is high the producers will be willing to supply more but the consumers will be buying less and vice versa.

The correct answer is A.

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

Price mechanism still operates freely, without government intervention, in certain capitalist economies.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Capitalist economies has private ownership where utilization of resources takes place for private gains, therefore here price mechanism takes place very smoothly without any government intervention in all types of private business that operates in a capitalist economy. 

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

Which of the following is correct?

  1. Normative economics is not concerned with value judgement.

  2. A market is a process that reconciles consumer decision, production decisions and labour decisions.

  3. A mixed economy has a certain level of government intervention in the economy along with private sector ownership of the economy.

  4. Both (B) and (C)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

a) A market is a process that reconciles consumer decision, production decisions and labour decisions.
b) A mixed economy has a certain level of government intervention in the economy along with private sector ownership of the economy.
Both these above statements are correct. 
Market equilibrium is determined by the consumer decision, production decision and labour decisions.
In a mixed economy, decisions are taken by both the private as well as public sectors of economy.

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

In a market economy the consumers enjoy the freedom of choice between ____________.

  1. consumption and savings

  2. consumption and investment

  3. savings and investment

  4. all of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

In a market 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 where the consumers have freedom of choice between how much they will spend and how much they will save. 

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

Which of the following non-economic conditions serve as a pre-requisite for the operating of price mechanism in an economy?

  1. Developed legal system

  2. Social chaos

  3. Government intervention

  4. None of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
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. Since price mechanism operates without government intervention, there is need for developed legal system in the economy so that there are less chances of fraudulent practices in the market. 

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

Price mechanism is the instrument for determining the level of _________.

  1. production and consumption

  2. savings and investment

  3. technological development

  4. all of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
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 determines the overall production in the economy that also signifies technological development and investment done. Moreover, it determines the consumption expenditure in the economy through aggregate demand which also signifies the overall savings in the economy.