A major function of the price mechanism is that it determines the
Allocation of resources
Amount of national savings
Population of the country
Number of goods to be taxed
Correct answer is A
The price mechanism is a mechanism where price plays a key role in directing the activities of producers, consumers, resource suppliers. It aids in resource allocation, as both the buyer and seller can decide on what product to produce and what to buy.
The gap between demand and supply curves above the equilibrium price is
Normal demand
Excess supply
Equilibrium quantity
Abnormal demand
Correct answer is B
If the market price is above the equilibrium price, the quantity supplied is greater than the quantity demanded, creating a surplus supply.
If good P and Q are jointly demanded, an increase in the price of P will likely
Leave the demand for Q constant but reduce the quantity demanded of P
Reduce the quantity of P but increase the Price of Q
Increase the quantity supplied of Q
Decrease the quantity demanded of Q
Correct answer is D
Joint demand is when you need two goods because they work together. If two goods are in joint demand they will have a high and negative cross elasticity of demand. This means a rise in the price of one will lead to a decrease in the demand for the other. Therefore option D is correct. An increase in the price of P, will lead to a decrease in the quantity demanded of Q.
Which of the following factors does not cause a change in demand?
Taste and fashion
Vagaries of weather
Price of other commodities
Price of commodity
Correct answer is D
A change in demand means a shift in consumer desire to purchase a particular good or service, irrespective of a difference in its price. From the options given above, the price of the commodity does not cause a change in demand, option D is therefore correct.
Satisfaction from an extra unit decreases
Satisfaction from an extra unit rises
Satisfaction from an extra units remains constant
Total satisfaction from the goods remains the same
Correct answer is A
The law of diminishing marginal utility states that, as the consumption of a particular commodity increases, the marginal utility/satisfaction gotten from the consumption of an additional unit of the said commodity will fall/decrease.