Markets

What is the expected outcome of a price floor?

• 1. Shortage of goods

• 1. Surplus of goods

• 1. Excess demand

• 1. Decreased demand

Answer explanation

A price floor is a minimum price set above the equilibrium price. This leads to quantity supplied exceeding quantity demanded, resulting in a surplus.

At equilibrium, which of the following is true?

• Business achieves all of their objectives

• Consumers achieve all of their objectives

• Anyone who wants to purchase at the equilibrium price can, however there are sellers at the equilibrium price who cannot sell their goods

• Anyone who wants to purchase at the equilibrium price can, and anyone who wants to sell at the equilibrium price can

Answer explanation

At equilibrium, the quantity demanded equals the quantity supplied, meaning anyone willing to buy at that price can find a seller, and anyone willing to sell at that price can find a buyer.

Which of the following is a characteristic of a duopolistic market structure?

• 1. Ease of market entry

• 1. Small firms

• 2. Competition by service

• 1. Normal profits

Answer explanation

Duopolies (two dominant firms, a type of oligopoly) often compete using non-price factors like service, advertising, or product differentiation, rather than solely on price, due to high barriers to entry and large firm size.

The law of demand features _____________ relationship between price and quantity demanded.

• 1. an ascending

• 1. an inverse

• 1. a reverse

• 1. a positive

Answer explanation

• The law of demand states that, ceteris paribus, as price increases, quantity demanded decreases, and vice versa, demonstrating an inverse relationship.

What effect would a fall in price for a good have on supply?

• 1. Decrease

• 1. Increase

• 1. Expansion

• 1. Contraction

Answer explanation

A fall in the price of the good itself causes a movement along the supply curve to a lower quantity supplied. This movement is called a contraction of supply.

If the price of fresh vegetables increased, what effect would this have on the demand for frozen vegetables?

• 1. Increased demand

• 1. Decreased demand

• 1. Expanded demand

• 1. Contracted demand

Answer explanation

Fresh and frozen vegetables are substitute goods. An increase in the price of fresh vegetables makes frozen vegetables relatively more attractive, causing the demand curve for frozen vegetables to shift to the right (increase).

The price mechanism is said to be allocatively efficient because:

• Resources are allocated by the government

• There is no excess demand, only excess supply

• There is no excess demand or excess supply

• There is no excess supply, only excess demand

Answer explanation

The price mechanism achieves allocative efficiency when the market clears, meaning quantity demanded equals quantity supplied, resulting in no excess demand or excess supply.

If demand for a good increases, which of the following describes the impact on the market?

• Demand expands and the supply curve moves in response

• Demand increases and supply expands

• Demand increases and supply increases

• Demand contracts and supply expands

Answer explanation

An increase in demand shifts the demand curve to the right, leading to a higher equilibrium price which causes an expansion (movement along) the existing supply curve as suppliers respond to the higher price.

A change in price will result in which of the following changes in supply?

• Supply increases

• Supply decreases

• Supply expands

• Supply contracts

Answer explanation

A change in the price of the good itself causes a movement along the supply curve, termed an expansion (increase in quantity supplied if price rises) or a contraction (decrease in quantity supplied if price falls). (Note: The question is slightly ambiguous without specifying the direction of price change.)

If the price is above the equilibrium price, which of the following occurs?

• Equilibrium

• Excess supply

• Excess demand

• Decreased supply

Answer explanation

If the price is above equilibrium, the quantity supplied by producers exceeds the quantity demanded by consumers, resulting in excess supply (a surplus).