Market Economy MCQ 4 (Price Mechanism)
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Questions and Answers

What is the primary effect of a price rise due to scarcity on the consumption of a good?

  • It has no impact on the consumption of the good.
  • It leads to an increase in the supply of the good.
  • It discourages consumption of the good, leading to resource conservation. (correct)
  • It encourages consumers to use more of the good.

    • What happens to consumers who are unable or unwilling to pay higher prices when prices rise?

  • They are more likely to enter the market.
  • They are deterred from entering the market altogether. (correct)
  • Their demand for the good increases.
  • Their supply of the good increases.

    • What is the role of the price mechanism in the allocation of scarce resources?

  • It has no impact on the allocation of resources.
  • It leads to an overallocation of resources.
  • It helps to ration the allocation of scarce resources. (correct)
  • It leads to an underallocation of resources.

    • What is the equilibrium price?

    <p>The price that ensures that everything that is supplied is demanded.</p> Signup and view all the answers

    What happens to the demand for a good when its price rises?

    <p>It decreases.</p> Signup and view all the answers

    What is the result of a price rise due to scarcity on the rental market in a city like Dublin?

    <p>Only those with the willingness and ability to pay high rents remain in the market.</p> Signup and view all the answers

    What is the benefit of the price mechanism in times of scarcity?

    <p>It helps to conserve resources.</p> Signup and view all the answers

    What is the characteristic of the equilibrium price in a market?

    <p>There is no excess supply or demand.</p> Signup and view all the answers

    What happens to consumers who are willing and able to pay higher prices when prices rise?

    <p>They remain in the market.</p> Signup and view all the answers

    What is a consequence of a price rise in the rental market in a city like Dublin?

    <p>The allocation of scarce rental properties is rationed.</p> Signup and view all the answers

    What is the primary function of the price mechanism in times of scarcity?

    <p>To ration the allocation of scarce resources.</p> Signup and view all the answers

    What is a characteristic of the equilibrium price?

    <p>The quantity demanded equals the quantity supplied.</p> Signup and view all the answers

    Study Notes

    The Rationing Function of the Price Mechanism

    • When the price of a good rises due to scarcity or shortages, it discourages consumption, conserving resources.

    • For example, a sharp increase in oil prices due to scarcity would lead consumers to be more careful with their fuel use and ration their consumption.

    • When prices rise, some consumers are deterred from entering the market, leaving only those who are willing and able to pay the higher prices.

    • For example, high rents in Dublin deter many people from renting, leaving only those who can afford the high rents in the rental market.

    Market Equilibrium

    • The equilibrium price is the price at which the quantity supplied equals the quantity demanded, ensuring no unsold stock (excess supply) and no unsatisfied customers (excess demand).
    • Excess supply (surplus) occurs when the quantity supplied exceeds the quantity demanded, resulting in a surplus of goods.
    • Excess demand occurs when the quantity demanded exceeds the quantity supplied, resulting in a shortage of goods.
    • To achieve equilibrium, suppliers must adjust prices to match the quantity supplied with the quantity demanded.

    The Rationing Function of the Price Mechanism

    • When the price of a good rises due to scarcity or shortages, it discourages consumption, conserving resources.

    • For example, a sharp increase in oil prices due to scarcity would lead consumers to be more careful with their fuel use and ration their consumption.

    • When prices rise, some consumers are deterred from entering the market, leaving only those who are willing and able to pay the higher prices.

    • For example, high rents in Dublin deter many people from renting, leaving only those who can afford the high rents in the rental market.

    Market Equilibrium

    • The equilibrium price is the price at which the quantity supplied equals the quantity demanded, ensuring no unsold stock (excess supply) and no unsatisfied customers (excess demand).
    • Excess supply (surplus) occurs when the quantity supplied exceeds the quantity demanded, resulting in a surplus of goods.
    • Excess demand occurs when the quantity demanded exceeds the quantity supplied, resulting in a shortage of goods.
    • To achieve equilibrium, suppliers must adjust prices to match the quantity supplied with the quantity demanded.

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    Description

    Learn about how the price mechanism helps conserve resources by discouraging consumption during scarcity/shortages. Understand how rising prices impact consumer behavior and rationing.

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