Test: The Theory of Price Determination - JAMB MCQ

When the price is above the equilibrium price in a competitive market, there will be a surplus. This means that the quantity supplied exceeds the quantity demanded at that price. As a result, sellers will have excess inventory, and they will need to lower the price to encourage buyers to purchase the product. This downward pressure on price continues until the market reaches a new equilibrium.

Technology advancements do not directly affect the demand for a product. Factors such as the price of related goods (substitutes and complements), consumer income, and population size can impact the demand for a product. Technological advancements may indirectly influence demand by affecting production costs or creating new products, but they do not directly change consumers' desire for a specific product.

If the demand for a product increases while the supply remains constant, the equilibrium price and quantity will both increase. The higher demand will lead to a greater quantity of the product being demanded at each price level. As a result, the equilibrium price will rise to accommodate this increased demand, and the equilibrium quantity will also increase to satisfy the higher level of demand.

The imposition of a price ceiling by the government will result in an excess demand for the product. A price ceiling is a maximum price set by the government, which is typically below the equilibrium price. By setting the price ceiling below the equilibrium price, the government aims to protect consumers by making the product more affordable. However, this creates a situation where the quantity demanded exceeds the quantity supplied, leading to a shortage or excess demand.

Minimum price legislation is often enacted to protect the interests of producers. A minimum price, also known as a price floor, is a price set by the government that is typically above the equilibrium price. By setting a minimum price, the government aims to ensure that producers receive a fair price for their goods or services. This protects the interests of producers by preventing prices from falling too low and potentially causing financial hardships.

The primary purpose of maximum price legislation is to protect consumers from high prices. Maximum price legislation, also known as price ceilings, is implemented by the government to set a limit on the price that can be charged for a particular product or service. The aim is to ensure affordability and prevent price exploitation, especially for essential goods or during times of crisis. By capping prices, the government aims to make goods more accessible to consumers.

If the demand and supply for a product both increase, the equilibrium price will increase, but the effect on the equilibrium quantity will depend on the relative magnitude of the changes in demand and supply. When both demand and supply increase, the equilibrium quantity will increase if the increase in demand is larger than the increase in supply. However, the equilibrium quantity may remain the same or even decrease if the increase in supply is larger than the increase in demand.

The price at which quantity demanded equals quantity supplied is known as the equilibrium price. It is the point of balance in a market where the intentions of buyers and sellers align. At the equilibrium price, there is neither a shortage nor a surplus of the product. Buyers are willing to purchase the quantity supplied by sellers, and sellers are willing to supply the quantity demanded by buyers.

If there is an increase in supply and a decrease in demand, the equilibrium price will decrease, but the effect on the equilibrium quantity will depend on the relative magnitude of the changes in supply and demand. When supply increases and demand decreases, the equilibrium quantity will decrease if the decrease in demand is larger than the increase in supply. However, the equilibrium quantity may remain the same or even increase if the increase in supply is larger than the decrease in demand.

The labor market is an example of a factor market. Factor markets are where factors of production, such as labor, capital, land, and entrepreneurship, are bought and sold. In the labor market, individuals supply their labor services, and businesses demand and hire workers. Factor markets are essential for the production of goods and services, as they provide the necessary resources for production.