Tag: price mechanism and solutions

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Questions Related to price mechanism and solutions

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

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

  1. forced to pay

  2. required to pay

  3. willing to pay

  4. either A or C
Reveal answer Fill a bubble to check yourself
C Correct answer
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. 

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

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

  1. True

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

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

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

  1. True

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

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

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

  1. True

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

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.