Price Mechanism Review

What is price mechanism?

• The way the government sets prices.

• The interaction of supply and demand to determine prices

• The calculation of profit by firms

• The mechanism of price.

When price increases, _________ will increase according to the law of supply.

• Supply

• Amount

• Quantity Supplied

• Demand

In a market economy, what role does price play?

• Allocates resources

• Determines government policy

• Eliminates competition

• Sets wages for workers

A surplus in the market indicates that:

• Supply is greater than demand

• Price is too low

• Supply is falling

• Quantity supplied is greater than quantity demanded

If a government sets a maximum price below the equilibrium price, what is the likely result?

• Surplus

• Equilibrium

• Shortage

• Inflation

If demand increases and supply increases, what is the outcome that will DEFINITELY occur?

• Equilibrium price will increase

• Equilibrium Price will decrease

• Equilibrium quantity will increase

• Equilibrium quantity will decrease

If the price elasticity of demand is -2, how is the demand characterized?

• Price Elastic

• Price Inelastic

• Unitary Elastic

• Perfectly Inelastic

When demand is price elastic, what happens to total revenue when price decreases?

• Total Revenue Increases

• Total Revenue Decreases

• Total Revenue Remains the same

• Total Revenue Fluctuates

Which of the follow factors does not affect PED?

• Proportion of Income spent on good

• Time Period

• Consumer Preferences

• Availability of Substitutes

What is the impact of subsidy on the supply curve?

• It shifts the supply curve leftward

• It shifts the supply curve rightward

• It doesn't affect the supply curve

• It makes the supply curve vertical