The Theory of Price Determination
Economics · 50 practice questions
Concepts of market and price; functions of the price system; equilibrium price and quantity in product and factor markets; price legislation and its effects; effects of changes in supply and demand on equilibrium price and quantity.
- Explain the concepts of market and price.
- Examine the functions of the price system.
- Evaluate the effects of government interference with the price system.
- Differentiate between minimum and maximum price legislation.
- Interpret the effects of supply/demand changes on equilibrium price and quantity.
Try a few questions
- Practice question 1
A minimum price set above the equilibrium price typically leads to
- A.excess demand (shortage)
- B.no change in the market
- C.excess supply (surplus)
- D.a fall in supply of the good
Show the answer
C. excess supply (surplus)
A price floor above equilibrium creates a surplus.
- Practice question 2
Using the same market, if government imposes a price floor of ₦40, the resulting surplus is
- A.10 units
- B.30 units
- C.20 units
- D.0 units
Show the answer
C. 20 units
At P=40: Qd=40, Qs=60; surplus = 60−40 = 20 units.
- Practice question 3
Using the same equations (Qd = 80 − P, Qs = 20 + P), the equilibrium quantity is
- A.40 units
- B.60 units
- C.50 units
- D.30 units
Show the answer
C. 50 units
At P=30, Qd = 80−30 = 50 (checks with Qs = 20+30 = 50).
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