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

Producer will adopt capital-intensive technique of production when the price capital is relatively cheaper than the price of labour.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A 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. Therefore, a producer will go with the technique which is cheapest among all the techniques of the production. 

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 a myth since the wants of the consumers are influenced by the producers through advertisement, propaganda and salesmanship.

  1. Production decisions

  2. Consumer sovereignty

  3. Optimum consumption set

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

In price mechanism, the market decides the price of each and every commodity therefore producers become the price taker but they try to influence consumers by the way of advertisement, propaganda and salesmanship so that every consumer in the market become their customer which break the laws of consumer sovereignty in the 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

The problem of ___________ is solved under price mechanism by the determination of techniques or methods of production.

  1. what to produce

  2. how to produce

  3. for whom to produce

  4. how much to produce
Reveal answer Fill a bubble to check yourself
B 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 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

Absence of perfect competition under price mechanism leads to ____________.

  1. reallocation of resources

  2. misallocation of resources

  3. optimum allocation of resources

  4. no allocation of resources
Reveal answer Fill a bubble to check yourself
B 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 and purchase by the demand sector. Therefore for price mechanism to operate freely, the market should be perfectly competitive because in a perfectly competitive market, the mobility of the factors of production is efficient.
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

When labour is relatively cheaper than capital, the producer will adopt ___________ technique of production.

  1. capital-intensive

  2. labour-intensive

  3. land-intensive

  4. either A or C
Reveal answer Fill a bubble to check yourself
B 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. Therefore, a producer will go with the technique which is cheapest among all the techniques of the production.
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 has failed to function efficiently because _____________.

  1. perfect competition does not exist

  2. of creation of economic instability

  3. there is inequality in distribution of income and wealth

  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 and purchase by the demand sector. Therefore for price mechanism to operate freely, the market should be perfectly competitive without any intervention with stability in the demand and supply situation that depends upon the distribution of income and wealth in the 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

Free operating of price mechanism has led to the evils of monopoly power in the hands of the __________.

  1. consumers

  2. producers

  3. government

  4. society
Reveal answer Fill a bubble to check yourself
B Correct answer
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 purchase by the demand sector i.e demand will increase if price decreases and vice-versa. But producer sector is in high dominance compared to the consumer sector as they had to supply the goods to the market so they fraudulently affect the price of the goods by their operations. 

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 tends to create economic stability.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B 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 purchase by the demand sector i.e demand will increase if price decreases and vice-versa. So due to this freedom policy, there are many fraudulent practices that take place in the market which makes the economy very unstable. 

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.