Topic 1: Demand
Q1.
| Column A | Column B |
| 1. Price of a product falls | a. Demand may increase |
| 2. Consumer income rises for a normal good | b. Demand may decrease |
| 3. Price of a substitute rises | c. Demand may increase |
| 4. Consumer preference changes against a product | d. Demand may decrease |
Options:
A. 1-a, 2-c, 3-b, 4-d
B. 1-b, 2-a, 3-c, 4-d
C. 1-a, 2-b, 3-d, 4-c
D. 1-d, 2-c, 3-a, 4-b
Q2.
| Column A | Column B |
| 1. More consumers enter the market | a. Market demand may rise |
| 2. Price rises, other things unchanged | b. Quantity demanded may fall |
| 3. A product becomes fashionable | c. Demand may increase |
| 4. Consumers expect a future price fall | d. Current demand may fall |
Options:
A. 1-b, 2-c, 3-a, 4-d
B. 1-a, 2-b, 3-c, 4-d
C. 1-c, 2-a, 3-d, 4-b
D. 1-d, 2-b, 3-c, 4-a
Q3.
| Column A | Column B |
| 1. Demand curve slopes downward | a. Lower price can encourage more purchases |
| 2. Higher income for a normal good | b. Purchasing ability may increase |
| 3. Fewer buyers in the market | c. Market demand may decrease |
| 4. Strong preference for a product | d. Demand may rise |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-c, 2-b, 3-a, 4-d
C. 1-a, 2-b, 3-c, 4-d
D. 1-d, 2-c, 3-b, 4-a
Q4.
| Column A | Column B |
| 1. Price of tea falls | a. Quantity demanded of tea may rise |
| 2. Price of coffee rises | b. Demand for tea may rise |
| 3. Consumers lose interest in tea | c. Demand for tea may fall |
| 4. Population increases | d. Market demand may increase |
Options:
A. 1-c, 2-a, 3-d, 4-b
B. 1-a, 2-b, 3-c, 4-d
C. 1-b, 2-c, 3-d, 4-a
D. 1-d, 2-c, 3-a, 4-b
Q5.
| Column A | Column B |
| 1. Lower price of a normal good | a. Movement along demand curve |
| 2. Higher consumer income | b. Possible shift in demand |
| 3. Change in taste | c. Demand determinant |
| 4. Change in number of buyers | d. Market demand determinant |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-d, 2-c, 3-b, 4-a
D. 1-c, 2-d, 3-a, 4-b
Q6.
| Column A | Column B |
| 1. Price of a substitute increases | a. Demand for the product may rise |
| 2. Income falls for a normal good | b. Demand may fall |
| 3. Product becomes more popular | c. Demand may rise |
| 4. Number of consumers falls | d. Market demand may fall |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q7.
| Column A | Column B |
| 1. Higher price of a product | a. May reduce quantity demanded |
| 2. Higher income | b. May increase demand for a normal good |
| 3. Negative change in preference | c. May reduce demand |
| 4. More buyers | d. May increase market demand |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-c, 2-a, 3-d, 4-b
C. 1-b, 2-d, 3-a, 4-c
D. 1-d, 2-c, 3-b, 4-a
Topic 2: Supply
Q8.
| Column A | Column B |
| 1. Price of a product rises | a. Quantity supplied may rise |
| 2. Production cost rises | b. Supply may decrease |
| 3. Better technology | c. Supply may increase |
| 4. More sellers enter the market | d. Market supply may increase |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-d, 2-c, 3-b, 4-a
D. 1-c, 2-d, 3-a, 4-b
Q9.
| Column A | Column B |
| 1. Higher wages increase production cost | a. Supply may fall |
| 2. Improved machinery | b. Supply may rise |
| 3. Higher market price | c. Quantity supplied may rise |
| 4. Sellers leave the market | d. Market supply may fall |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q10.
| Column A | Column B |
| 1. Lower input prices | a. Production becomes cheaper |
| 2. New technology | b. Productive capacity may rise |
| 3. Higher product price | c. Quantity supplied may rise |
| 4. Natural disaster | d. Supply may decrease |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-c, 2-a, 3-d, 4-b
C. 1-b, 2-d, 3-a, 4-c
D. 1-d, 2-c, 3-b, 4-a
Q11.
| Column A | Column B |
| 1. Production becomes more efficient | a. Supply can increase |
| 2. Cost of raw materials rises | b. Supply can decrease |
| 3. More producers enter | c. Market supply increases |
| 4. Price falls | d. Quantity supplied may decrease |
Options:
A. 1-b, 2-c, 3-d, 4-a
B. 1-a, 2-b, 3-c, 4-d
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-a, 3-b, 4-c
Q12.
| Column A | Column B |
| 1. Government subsidy to producers | a. Production cost may effectively fall |
| 2. Increase in input cost | b. Supply may fall |
| 3. Improved infrastructure | c. Supply may increase |
| 4. Firms shut down | d. Market supply decreases |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q13.
| Column A | Column B |
| 1. Better transport facilities | a. May reduce distribution difficulties |
| 2. Higher taxes on production | b. May reduce supply |
| 3. Higher product price | c. May encourage more supply |
| 4. New producers | d. Increase market supply |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-d, 2-c, 3-b, 4-a
D. 1-c, 2-d, 3-a, 4-b
Q14.
| Column A | Column B |
| 1. Input prices decrease | a. Supply may rise |
| 2. Production technology worsens | b. Supply may fall |
| 3. Market price rises | c. Quantity supplied may rise |
| 4. Number of producers falls | d. Market supply may fall |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-c, 2-a, 3-d, 4-b
C. 1-b, 2-d, 3-a, 4-c
D. 1-d, 2-c, 3-b, 4-a
Topic 3: Equilibrium Price
Q15.
| Column A | Column B |
| 1. Demand equals supply | a. Market equilibrium |
| 2. Buyers want more than sellers offer | b. Shortage |
| 3. Sellers offer more than buyers want | c. Surplus |
| 4. Price adjusts to balance market forces | d. Equilibrium price mechanism |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-b, 2-a, 3-d, 4-c
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q16.
| Column A | Column B |
| 1. Buyers and sellers agree on market-clearing price | a. Equilibrium price |
| 2. Quantity demanded equals quantity supplied | b. Market clears |
| 3. Persistent shortage | c. Upward pressure on price |
| 4. Persistent surplus | d. Downward pressure on price |
Options:
A. 1-b, 2-c, 3-d, 4-a
B. 1-a, 2-b, 3-c, 4-d
C. 1-d, 2-a, 3-b, 4-c
D. 1-c, 2-d, 3-a, 4-b
Q17.
| Column A | Column B |
| 1. Excess demand | a. Shortage |
| 2. Excess supply | b. Surplus |
| 3. Equal demand and supply | c. Equilibrium |
| 4. Price above equilibrium | d. Potential surplus |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q18.
| Column A | Column B |
| 1. Market equilibrium | a. No excess demand or supply |
| 2. Price below equilibrium | b. Shortage may occur |
| 3. Price above equilibrium | c. Surplus may occur |
| 4. Shortage | d. Buyers compete for limited supply |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-c, 2-a, 3-d, 4-b
C. 1-b, 2-d, 3-a, 4-c
D. 1-d, 2-c, 3-b, 4-a
Q19.
| Column A | Column B |
| 1. Equilibrium quantity | a. Quantity bought and sold at equilibrium |
| 2. Excess demand | b. Demand exceeds supply |
| 3. Excess supply | c. Supply exceeds demand |
| 4. Market-clearing price | d. Price at which market balances |
Options:
A. 1-b, 2-c, 3-d, 4-a
B. 1-a, 2-b, 3-c, 4-d
C. 1-d, 2-a, 3-b, 4-c
D. 1-c, 2-d, 3-a, 4-b
Q20.
| Column A | Column B |
| 1. Demand increases while supply remains unchanged | a. Equilibrium price may rise |
| 2. Supply increases while demand remains unchanged | b. Equilibrium price may fall |
| 3. Demand falls | c. Downward pressure on price |
| 4. Supply falls | d. Upward pressure on price |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-c, 2-d, 3-a, 4-b
C. 1-b, 2-a, 3-d, 4-c
D. 1-d, 2-c, 3-b, 4-a
Q21.
| Column A | Column B |
| 1. Shortage persists | a. Price may rise |
| 2. Surplus persists | b. Price may fall |
| 3. Equilibrium reached | c. Market tends to clear |
| 4. Demand and supply both change | d. New equilibrium may emerge |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Topic 4: Surplus and Shortage
Q22.
| Column A | Column B |
| 1. Quantity demanded exceeds quantity supplied | a. Shortage |
| 2. Quantity supplied exceeds quantity demanded | b. Surplus |
| 3. Price below equilibrium | c. Likely shortage |
| 4. Price above equilibrium | d. Likely surplus |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-b, 2-a, 3-d, 4-c
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q23.
| Column A | Column B |
| 1. Shortage of fuel | a. Buyers may compete for limited fuel |
| 2. Surplus of vegetables | b. Sellers may reduce prices |
| 3. Shortage continues | c. Upward pressure on price |
| 4. Surplus continues | d. Downward pressure on price |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q24.
| Column A | Column B |
| 1. Festival demand rises suddenly | a. Temporary shortage may develop |
| 2. Unexpected fall in production | b. Supply decreases |
| 3. Unsold inventory | c. Surplus |
| 4. Excess demand | d. Shortage |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-b, 2-a, 3-d, 4-c
C. 1-d, 2-c, 3-b, 4-a
D. 1-c, 2-d, 3-a, 4-b
Q25.
| Column A | Column B |
| 1. Buyers cannot purchase desired quantity | a. Shortage |
| 2. Producers cannot sell all output | b. Surplus |
| 3. Price is too low to clear market | c. Excess demand |
| 4. Price is too high to clear market | d. Excess supply |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q26.
| Column A | Column B |
| 1. Heavy demand with limited supply | a. Shortage |
| 2. Large production with weak demand | b. Surplus |
| 3. Sellers lower price to clear stock | c. Response to surplus |
| 4. Buyers offer higher prices during shortage | d. Upward price pressure |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-c, 2-a, 3-d, 4-b
C. 1-b, 2-d, 3-a, 4-c
D. 1-d, 2-c, 3-b, 4-a
Q27.
| Column A | Column B |
| 1. Supply falls suddenly | a. Shortage may occur |
| 2. Demand falls suddenly | b. Surplus may occur |
| 3. Price adjustment after shortage | c. May encourage additional supply |
| 4. Price adjustment after surplus | d. May encourage additional demand |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-d, 2-c, 3-b, 4-a
D. 1-c, 2-d, 3-a, 4-b
Q28.
| Column A | Column B |
| 1. Shortage of essential medicine | a. Consumers may struggle to obtain it |
| 2. Surplus of unsold clothing | b. Sellers may offer discounts |
| 3. Price below equilibrium | c. Excess demand |
| 4. Price above equilibrium | d. Excess supply |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-c, 2-d, 3-a, 4-b
C. 1-b, 2-a, 3-d, 4-c
D. 1-d, 2-c, 3-b, 4-a
Topic 5: Price Ceiling
Q29.
| Column A | Column B |
| 1. Government fixes maximum legal price | a. Price ceiling |
| 2. Ceiling below equilibrium price | b. Binding ceiling |
| 3. Demand exceeds supply at controlled price | c. Shortage |
| 4. Legal price cannot be increased above limit | d. Maximum-price rule |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-b, 2-a, 3-d, 4-c
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q30.
| Column A | Column B |
| 1. Rent ceiling below market rent | a. Demand for housing may exceed supply |
| 2. Maximum price of essential item | b. Consumers may benefit from lower legal price |
| 3. Persistent shortage | c. Some consumers may be unable to buy |
| 4. Strict enforcement | d. Illegal selling may be discouraged |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-d, 2-c, 3-b, 4-a
D. 1-c, 2-d, 3-a, 4-b
Q31.
| Column A | Column B |
| 1. Binding price ceiling | a. Set below equilibrium |
| 2. Non-binding price ceiling | b. Does not affect market price |
| 3. Shortage under ceiling | c. Demand exceeds supply |
| 4. Rationing | d. Method of allocating limited supply |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q32.
| Column A | Column B |
| 1. Legal maximum price is low | a. Consumers may demand more |
| 2. Producers receive lower price | b. Some may reduce supply |
| 3. Supply becomes insufficient | c. Shortage develops |
| 4. Informal payments appear | d. Possible black-market activity |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-c, 2-a, 3-d, 4-b
C. 1-b, 2-d, 3-a, 4-c
D. 1-d, 2-c, 3-b, 4-a
Q33.
| Column A | Column B |
| 1. Government controls rent | a. Price ceiling |
| 2. Maximum price is above equilibrium | b. Usually non-binding |
| 3. Maximum price is below equilibrium | c. Usually binding |
| 4. Buyers cannot obtain desired quantity | d. Shortage |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-d, 2-c, 3-b, 4-a
D. 1-c, 2-d, 3-a, 4-b
Q34.
| Column A | Column B |
| 1. Ceiling set at equilibrium price | a. May have little direct effect |
| 2. Ceiling below equilibrium | b. Can create shortage |
| 3. Shortage with fixed low price | c. Allocation problem |
| 4. Limited goods sold secretly at higher prices | d. Black-market possibility |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-b, 2-c, 3-d, 4-a
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-a, 3-b, 4-c
Q35.
| Column A | Column B |
| 1. Maximum legal price | a. Price ceiling |
| 2. Ceiling below equilibrium | b. Potential shortage |
| 3. Shortage | c. Excess demand |
| 4. Unofficial higher price | d. Possible black market |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-c, 2-d, 3-a, 4-b
C. 1-b, 2-a, 3-d, 4-c
D. 1-d, 2-c, 3-b, 4-a
Topic 6: Black Markets
Q36.
| Column A | Column B |
| 1. Legal price kept below market-clearing level | a. Shortage |
| 2. Sellers secretly charge more | b. Black-market price |
| 3. Goods sold outside legal system | c. Black market |
| 4. Consumers willing to pay unofficial price | d. Hidden transaction |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-b, 2-c, 3-d, 4-a
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-a, 3-b, 4-c
Q37.
| Column A | Column B |
| 1. Controlled price creates shortage | a. Unmet demand |
| 2. Scarce goods sold secretly | b. Black-market transaction |
| 3. Unofficial price exceeds legal price | c. Price premium |
| 4. Strict monitoring | d. May reduce illegal transactions |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-d, 2-c, 3-b, 4-a
D. 1-c, 2-d, 3-a, 4-b
Q38.
| Column A | Column B |
| 1. Essential good becomes scarce | a. Unofficial resale may increase |
| 2. Legal price remains very low | b. Demand may exceed supply |
| 3. Seller hides actual transaction | c. Illegal market activity |
| 4. Buyer pays extra secretly | d. Black-market premium |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-b, 2-c, 3-d, 4-a
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-a, 3-b, 4-c
Q39.
| Column A | Column B |
| 1. Shortage caused by binding ceiling | a. Incentive for unofficial sales |
| 2. Unofficial sale | b. Transaction outside legal channel |
| 3. Black-market price | c. Often above controlled price |
| 4. Enforcement | d. Can discourage illegal trade |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q40.
| Column A | Column B |
| 1. Very low legal price | a. May increase quantity demanded |
| 2. Insufficient supply | b. Creates unmet demand |
| 3. Secret higher-price sale | c. Black-market activity |
| 4. Consumer pays extra | d. Unofficial price premium |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-c, 2-a, 3-d, 4-b
C. 1-b, 2-d, 3-a, 4-c
D. 1-d, 2-c, 3-b, 4-a
Q41.
| Column A | Column B |
| 1. Shortage of a controlled product | a. Opportunity for illegal sellers |
| 2. Consumers unable to obtain goods legally | b. Unmet demand |
| 3. Seller charges above legal limit secretly | c. Black-market pricing |
| 4. Government improves monitoring | d. Illegal activity may decline |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-d, 2-c, 3-b, 4-a
D. 1-c, 2-d, 3-a, 4-b
Q42.
| Column A | Column B |
| 1. Binding ceiling | a. Can create shortage |
| 2. Shortage | b. Creates incentive for unofficial allocation |
| 3. Black market | c. Illegal exchange |
| 4. Higher unofficial price | d. May reduce some excess demand |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-b, 2-c, 3-d, 4-a
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-a, 3-b, 4-c
Topic 7: Market Failure
Q43.
| Column A | Column B |
| 1. Market does not allocate resources efficiently | a. Market failure |
| 2. Pollution affects others | b. Externality |
| 3. Buyers lack important information | c. Information asymmetry |
| 4. Non-excludable public service | d. Public good |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-b, 2-c, 3-d, 4-a
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-a, 3-b, 4-c
Q44.
| Column A | Column B |
| 1. Factory pollutes river | a. Negative externality |
| 2. Buyer cannot judge product quality | b. Information problem |
| 3. Street lighting | c. Public good |
| 4. Socially inefficient market outcome | d. Market failure |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-d, 2-c, 3-b, 4-a
D. 1-c, 2-d, 3-a, 4-b
Q45.
| Column A | Column B |
| 1. Pollution imposes costs on neighbours | a. External cost |
| 2. Seller knows more than buyer | b. Information asymmetry |
| 3. National defence | c. Public good |
| 4. Market outcome harms social welfare | d. Market failure |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-c, 2-d, 3-a, 4-b
C. 1-b, 2-c, 3-d, 4-a
D. 1-d, 2-a, 3-b, 4-c
Q46.
| Column A | Column B |
| 1. Factory ignores pollution cost | a. Negative externality |
| 2. Used-car seller knows hidden defects | b. Information asymmetry |
| 3. Public street lighting benefits many | c. Public good |
| 4. Market produces inefficient outcome | d. Market failure |
Options:
A. 1-b, 2-c, 3-d, 4-a
B. 1-a, 2-b, 3-c, 4-d
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-a, 3-b, 4-c
Q47.
| Column A | Column B |
| 1. Harm imposed on third parties | a. Externality |
| 2. Unequal access to information | b. Information asymmetry |
| 3. Benefit available to many without easy exclusion | c. Public good |
| 4. Failure of market mechanism to achieve efficient outcome | d. Market failure |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-b, 2-a, 3-d, 4-c
C. 1-d, 2-c, 3-b, 4-a
D. 1-c, 2-d, 3-a, 4-b
Q48.
| Column A | Column B |
| 1. Noise pollution from a factory | a. Negative externality |
| 2. Insurance buyer hides relevant information | b. Information asymmetry |
| 3. Public warning system | c. Public good |
| 4. Unregulated market creates social cost | d. Market failure |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q49.
| Column A | Column B |
| 1. Market price ignores pollution damage | a. Private and social costs differ |
| 2. Buyer lacks product information | b. Information asymmetry |
| 3. Defence protects people collectively | c. Public good |
| 4. Market produces too much harmful activity | d. Market failure |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-c, 2-d, 3-a, 4-b
C. 1-b, 2-c, 3-d, 4-a
D. 1-d, 2-a, 3-b, 4-c
Topic 8: Externalities
Q50.
| Column A | Column B |
| 1. Factory pollution | a. Negative externality |
| 2. Vaccination reduces disease spread | b. Positive externality |
| 3. Noise affects nearby residents | c. External cost |
| 4. Education benefits society beyond student | d. Positive external benefit |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-b, 2-a, 3-d, 4-c
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q51.
| Column A | Column B |
| 1. Smoking affects nearby people | a. Negative externality |
| 2. Tree planting improves neighbourhood air | b. Positive externality |
| 3. Factory imposes clean-up costs on society | c. External cost |
| 4. Education improves social awareness | d. External benefit |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-d, 2-c, 3-b, 4-a
D. 1-c, 2-d, 3-a, 4-b
Q52.
| Column A | Column B |
| 1. Pollution from production | a. Social cost may exceed private cost |
| 2. Public health benefit of vaccination | b. Social benefit may exceed private benefit |
| 3. Traffic congestion | c. Negative externality |
| 4. Education of an individual | d. Positive externality |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-c, 2-d, 3-a, 4-b
C. 1-b, 2-a, 3-d, 4-c
D. 1-d, 2-c, 3-b, 4-a
Q53.
| Column A | Column B |
| 1. Factory dumps waste into river | a. Negative externality |
| 2. A vaccinated person reduces infection risk to others | b. Positive externality |
| 3. Noise from construction harms residents | c. External cost |
| 4. A person’s education benefits employers and society | d. External benefit |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q54.
| Column A | Column B |
| 1. Pollution is not included in market price | a. External cost |
| 2. Society benefits from cleaner air | b. External benefit |
| 3. Excessive pollution | c. Negative externality |
| 4. Immunisation of children | d. Positive externality |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-b, 2-c, 3-d, 4-a
C. 1-d, 2-a, 3-b, 4-c
D. 1-c, 2-d, 3-a, 4-b
Q55.
| Column A | Column B |
| 1. A company pollutes a lake | a. Third parties are affected |
| 2. A student becomes educated | b. Wider social benefits |
| 3. Traffic congestion | c. Negative externality |
| 4. Vaccination | d. Positive externality |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q56.
| Column A | Column B |
| 1. Industrial smoke affects nearby people | a. Negative externality |
| 2. Public health improves through vaccination | b. Positive externality |
| 3. Private decision creates social harm | c. External cost |
| 4. Private action creates social benefit | d. External benefit |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-c, 2-a, 3-d, 4-b
C. 1-b, 2-d, 3-a, 4-c
D. 1-d, 2-c, 3-b, 4-a
Topic 9: Information Asymmetry
Q57.
| Column A | Column B |
| 1. Seller knows hidden defect | a. Information asymmetry |
| 2. Buyer cannot assess quality | b. Information disadvantage |
| 3. Product certification | c. Reduces information problem |
| 4. Misleading product information | d. Can distort consumer choice |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-b, 2-a, 3-d, 4-c
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q58.
| Column A | Column B |
| 1. Used-car seller knows repair history | a. Seller has more information |
| 2. Buyer cannot inspect engine properly | b. Buyer faces information gap |
| 3. Quality certification | c. Helps reduce uncertainty |
| 4. Hidden defects | d. May lead to poor purchasing decisions |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-d, 2-c, 3-b, 4-a
D. 1-c, 2-d, 3-a, 4-b
Q59.
| Column A | Column B |
| 1. Doctor knows more about treatment than patient | a. Information asymmetry |
| 2. Buyer receives complete product details | b. Better-informed choice |
| 3. Seller hides important information | c. Information disadvantage |
| 4. Standard quality labels | d. Improve transparency |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-c, 2-d, 3-a, 4-b
C. 1-b, 2-a, 3-d, 4-c
D. 1-d, 2-c, 3-b, 4-a
Q60.
| Column A | Column B |
| 1. Buyer knows less than seller | a. Information asymmetry |
| 2. Seller provides reliable information | b. Consumer decision improves |
| 3. Hidden product defect | c. Information gap |
| 4. Independent product review | d. Helps consumers compare |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q61.
| Column A | Column B |
| 1. Seller knows actual quality | a. Better-informed seller |
| 2. Consumer lacks technical knowledge | b. Information disadvantage |
| 3. Transparent labelling | c. Reduces information gap |
| 4. False claims by seller | d. Can mislead buyers |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-b, 2-a, 3-d, 4-c
C. 1-d, 2-c, 3-b, 4-a
D. 1-c, 2-d, 3-a, 4-b
Q62.
| Column A | Column B |
| 1. Insurance company knows less about customer’s behaviour | a. Information asymmetry |
| 2. Consumer checks certification | b. Information gathering |
| 3. Hidden terms in a contract | c. Information disadvantage |
| 4. Clear disclosure rules | d. Greater transparency |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q63.
| Column A | Column B |
| 1. Consumer cannot verify quality | a. Information problem |
| 2. Seller hides important facts | b. Information asymmetry |
| 3. Reliable certification | c. Helps establish quality |
| 4. Better consumer information | d. Can improve market decisions |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-c, 2-d, 3-a, 4-b
C. 1-b, 2-a, 3-d, 4-c
D. 1-d, 2-c, 3-b, 4-a
Topic 10: Public Goods
Q64.
| Column A | Column B |
| 1. Street lighting | a. Public good |
| 2. National defence | b. Broad collective benefit |
| 3. One person’s use does not greatly reduce availability to others | c. Non-rival characteristic |
| 4. Difficult to exclude non-payers | d. Non-excludable characteristic |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-b, 2-a, 3-d, 4-c
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q65.
| Column A | Column B |
| 1. Streetlight benefits everyone nearby | a. Public good |
| 2. National defence protects citizens collectively | b. Collective benefit |
| 3. Difficulty in excluding people | c. Non-excludability |
| 4. One person’s benefit does not substantially reduce another’s | d. Non-rivalry |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-d, 2-c, 3-b, 4-a
D. 1-c, 2-d, 3-a, 4-b
Q66.
| Column A | Column B |
| 1. Public park lighting | a. Shared benefit |
| 2. National defence | b. Public good |
| 3. People can benefit without direct payment | c. Non-excludability |
| 4. Use by one person does not significantly reduce availability | d. Non-rivalry |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-c, 2-d, 3-a, 4-b
C. 1-b, 2-a, 3-d, 4-c
D. 1-d, 2-c, 3-b, 4-a
Q67.
| Column A | Column B |
| 1. Public warning siren | a. Collective service |
| 2. Defence system | b. Public good |
| 3. Difficult to prevent non-payers from benefiting | c. Non-excludability |
| 4. Shared use without significant depletion | d. Non-rivalry |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q68.
| Column A | Column B |
| 1. Public street lighting | a. Benefits many people |
| 2. National security | b. Public good |
| 3. Non-payers can still benefit | c. Non-excludability |
| 4. Additional user does not substantially reduce benefit | d. Non-rivalry |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-b, 2-c, 3-d, 4-a
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-a, 3-b, 4-c
Q69.
| Column A | Column B |
| 1. Flood-warning system | a. Public service |
| 2. National defence | b. Collective protection |
| 3. Difficult to charge every beneficiary | c. Non-excludability |
| 4. Many can benefit simultaneously | d. Non-rivalry |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-d, 2-c, 3-b, 4-a
D. 1-c, 2-d, 3-a, 4-b
Q70.
| Column A | Column B |
| 1. A service provided for collective benefit | a. Public good |
| 2. Cannot easily exclude non-payers | b. Non-excludability |
| 3. Simultaneous use by many | c. Non-rivalry |
| 4. Government may provide it | d. Public provision |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-c, 2-d, 3-a, 4-b
C. 1-b, 2-a, 3-d, 4-c
D. 1-d, 2-c, 3-b, 4-a
Topic 11: Necessities, Luxuries, Perishables and Consumer Expectations
Q71.
| Column A | Column B |
| 1. Basic food item | a. Necessity |
| 2. Expensive designer watch | b. Luxury |
| 3. Fresh milk | c. Perishable |
| 4. Expected future price rise | d. May increase current demand |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-b, 2-a, 3-d, 4-c
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q72.
| Column A | Column B |
| 1. Medicine needed for treatment | a. Necessity |
| 2. Premium holiday package | b. Luxury |
| 3. Fresh vegetables | c. Perishable |
| 4. Expected shortage next week | d. Current demand may rise |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-d, 2-c, 3-b, 4-a
D. 1-c, 2-d, 3-a, 4-b
Q73.
| Column A | Column B |
| 1. Basic cooking fuel | a. Necessity |
| 2. Luxury sports car | b. Luxury |
| 3. Fresh fish | c. Perishable |
| 4. Expected future price fall | d. May reduce current demand |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-c, 2-d, 3-a, 4-b
C. 1-b, 2-a, 3-d, 4-c
D. 1-d, 2-c, 3-b, 4-a
Q74.
| Column A | Column B |
| 1. Basic school uniform | a. Necessity |
| 2. Diamond jewellery | b. Luxury |
| 3. Fresh bread | c. Perishable |
| 4. Consumers expect prices to rise tomorrow | d. May buy more today |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q75.
| Column A | Column B |
| 1. Essential household food | a. Necessity |
| 2. High-end yacht | b. Luxury |
| 3. Fresh fruit | c. Perishable |
| 4. Expected shortage of onions | d. May encourage advance buying |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-d, 2-c, 3-b, 4-a
C. 1-b, 2-a, 3-d, 4-c
D. 1-c, 2-d, 3-a, 4-b
Q76.
| Column A | Column B |
| 1. Basic electricity requirement | a. Necessity |
| 2. Designer handbag | b. Luxury |
| 3. Fresh dairy product | c. Perishable |
| 4. Expected price decrease next month | d. Consumers may postpone purchases |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q77.
| Column A | Column B |
| 1. Essential medicine | a. Necessity |
| 2. Luxury cruise | b. Luxury |
| 3. Fresh meat | c. Perishable |
| 4. Consumers expect a product to become scarce | d. Demand may rise today |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-c, 2-d, 3-a, 4-b
C. 1-b, 2-a, 3-d, 4-c
D. 1-d, 2-c, 3-b, 4-a
Topic 12: Market Interaction – Demand, Supply and Price Signals
Q78.
| Column A | Column B |
| 1. Demand rises while supply remains unchanged | a. Upward pressure on price |
| 2. Supply rises while demand remains unchanged | b. Downward pressure on price |
| 3. Price rises and attracts producers | c. Price signal |
| 4. Market reaches balance | d. Equilibrium |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-b, 2-a, 3-d, 4-c
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q79.
| Column A | Column B |
| 1. Strong demand for umbrellas during rain | a. Price may rise |
| 2. Many producers start making umbrellas | b. Supply increases |
| 3. High price encourages production | c. Incentive to producers |
| 4. Demand and supply become equal | d. Equilibrium |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-d, 2-c, 3-b, 4-a
D. 1-c, 2-d, 3-a, 4-b
Q80.
| Column A | Column B |
| 1. Demand suddenly increases | a. Price may increase |
| 2. Production expands | b. Supply increases |
| 3. Price falls due to excess supply | c. Signal to consumers |
| 4. Market clears | d. Equilibrium condition |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-c, 2-d, 3-a, 4-b
C. 1-b, 2-a, 3-d, 4-c
D. 1-d, 2-c, 3-b, 4-a
Q81.
| Column A | Column B |
| 1. Consumers buy more after price falls | a. Quantity demanded rises |
| 2. Producers reduce output after price falls | b. Quantity supplied may fall |
| 3. Shortage pushes price upward | c. Market adjustment |
| 4. Surplus pushes price downward | d. Market adjustment |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q82.
| Column A | Column B |
| 1. Demand for a product rises | a. Sellers may raise price |
| 2. New firms enter because of attractive returns | b. Supply may increase |
| 3. Excess supply develops | c. Price may fall |
| 4. Market reaches clearing point | d. Equilibrium |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-c, 2-a, 3-d, 4-b
C. 1-b, 2-d, 3-a, 4-c
D. 1-d, 2-c, 3-b, 4-a
Q83.
| Column A | Column B |
| 1. Demand exceeds supply | a. Shortage |
| 2. Supply exceeds demand | b. Surplus |
| 3. Price responds to shortage | c. May rise |
| 4. Price responds to surplus | d. May fall |
Options:
A. 1-b, 2-a, 3-d, 4-c
B. 1-a, 2-b, 3-c, 4-d
C. 1-c, 2-d, 3-a, 4-b
D. 1-d, 2-c, 3-b, 4-a
Q84.
| Column A | Column B |
| 1. Consumers suddenly prefer a product | a. Demand increases |
| 2. Producers adopt better technology | b. Supply increases |
| 3. Demand is greater than available supply | c. Shortage |
| 4. Quantity supplied equals quantity demanded | d. Equilibrium |
Options:
A. 1-a, 2-b, 3-c, 4-d
B. 1-b, 2-a, 3-d, 4-c
C. 1-d, 2-c, 3-b, 4-a
D. 1-c, 2-d, 3-a, 4-b
Detailed answer key for Q No (1-84)
Q1. B — [Detailed explanation]
No matching sequence, no extra options, and no table in the detailed key. Only the question number + correct option + detailed explanation.
Detailed Answer Key
Topic 1: Demand
Q1. B
Demand refers to the quantity of a good or service that consumers are willing and able to purchase at a given price during a particular period. A mere desire for a product is not enough to constitute demand; the consumer must also have the ability and willingness to buy it.
Q2. D
A change in the price of a product generally causes a movement along its demand curve, while changes in factors such as income, preferences, expectations, or prices of related goods can cause the demand curve itself to shift.
Q3. A
Consumer demand is influenced by several factors. Income, tastes and preferences, prices of related goods, and expectations about future prices can all affect how much consumers are willing and able to purchase.
Q4. C
The demand curve generally shows an inverse relationship between price and quantity demanded, assuming other relevant factors remain unchanged. Thus, a fall in price generally leads to an increase in quantity demanded.
Q5. B
Consumer expectations about future prices can affect present demand. If consumers expect a product to become more expensive in the future, they may decide to buy more of it now.
Q6. D
Demand is different from a simple desire or wish. For a desire to become demand, the consumer must be willing and able to purchase the product at the prevailing price.
Q7. A
When the price of a good falls, consumers generally find it more affordable and may purchase a larger quantity. When its price rises, quantity demanded generally falls, assuming other factors remain unchanged.
Topic 2: Supply
Q8. C
Supply refers to the quantity of a good or service that producers are willing and able to offer for sale at different prices during a given period. Producers make supply decisions based on expected returns and production conditions.
Q9. A
The supply of a product can be affected by production costs, technology, taxes, subsidies, expectations, and the number of sellers. A change in these factors can alter the quantity producers are willing to supply.
Q10. D
Improved technology can make production more efficient. If producers can produce goods at lower cost or with greater productivity, they may be willing to supply a larger quantity.
Q11. B
An increase in production costs can reduce the profitability of producing a good. As a result, producers may reduce the quantity they are willing to supply at a given price.
Q12. C
A change in the product’s own price generally causes movement along the supply curve. Changes in other factors, such as technology or production costs, can shift the supply curve.
Q13. D
Producers respond to incentives and expectations. If producers expect favourable prices or improved profitability, they may have greater incentive to produce and supply the product.
Q14. A
Supply decisions depend on factors such as selling price, input costs, technology, government policies, and expectations. Producers compare expected returns with the cost and difficulty of production.
Topic 3: Equilibrium Price
Q15. B
Equilibrium occurs when the quantity demanded by consumers is equal to the quantity supplied by producers. At this point, there is neither excess demand nor excess supply.
Q16. D
If demand increases while supply remains unchanged, buyers compete for the available quantity. This generally puts upward pressure on the equilibrium price and increases the equilibrium quantity.
Q17. C
Market equilibrium is reached through the interaction of demand and supply. The equilibrium price is the price at which the plans of buyers and sellers are consistent with each other.
Q18. A
At equilibrium, there is no shortage or surplus. Since the quantity consumers want to buy equals the quantity producers want to sell, there is no immediate pressure from excess demand or excess supply to change the price.
Q19. B
When supply decreases while demand remains unchanged, the available quantity becomes relatively scarce. This generally raises the equilibrium price and reduces the equilibrium quantity.
Q20. C
Equilibrium can change whenever market conditions change. For example, changes in consumer demand, production costs, technology, or other supply conditions can change the equilibrium price and quantity.
Q21. D
The equilibrium price is determined by the interaction of demand and supply. Neither consumers nor producers alone determine the final market-clearing price in a competitive market.
Topic 4: Surplus and Shortage
Q22. A
A surplus occurs when the quantity supplied is greater than the quantity demanded at the existing price. Producers therefore have more goods available for sale than consumers are willing to purchase.
Q23. C
A shortage occurs when quantity demanded is greater than quantity supplied at the existing price. In such a situation, some consumers who want to buy the product may not be able to obtain it.
Q24. B
When the market price is above the equilibrium price, producers generally want to supply more while consumers want to purchase less. This creates a surplus.
Q25. D
When the price is below the equilibrium price, consumers generally want to purchase more while producers are willing to supply less. This creates a shortage.
Q26. A
A surplus can create downward pressure on prices. Sellers may reduce prices or offer better terms to attract buyers because the quantity available for sale is greater than the quantity demanded.
Q27. D
A shortage can create upward pressure on prices because many buyers compete for a limited quantity of the product. This pressure can move the market toward equilibrium.
Q28. C
Both surplus and shortage occur when the market price differs from the equilibrium level. A surplus is associated with excess supply, while a shortage is associated with excess demand.
Topic 5: Price Ceiling
Q29. B
A price ceiling is a legally imposed maximum price that sellers are allowed to charge for a good or service. If it is set below the equilibrium price, it can become binding and create a shortage.
Q30. D
A binding price ceiling prevents the market price from rising to its equilibrium level. Because the controlled price is kept below equilibrium, consumers may demand more than producers are willing to supply.
Q31. A
A price ceiling set below equilibrium can create excess demand. Consumers want to purchase a larger quantity at the lower controlled price, while producers may offer a smaller quantity.
Q32. C
Governments may introduce price ceilings with the intention of keeping essential goods or services affordable for consumers. However, the effects of such controls depend on how the policy is designed and implemented.
Q33. B
A binding price ceiling can create non-price methods of allocating goods. For example, consumers may face queues, waiting lists, or other restrictions because the quantity demanded exceeds the quantity available.
Q34. A
A lower legal price does not necessarily mean that every consumer will obtain the product. If the controlled price creates a shortage, some consumers may be unable to buy the good.
Q35. D
A price ceiling above the equilibrium price generally does not restrict the market because the equilibrium price is already below the legal maximum. Therefore, such a ceiling is considered non-binding.
Topic 6: Black Markets
Q36. C
A black market refers to transactions that take place outside the legal or officially regulated market. Such transactions may arise when legal market arrangements prevent some willing buyers and sellers from completing transactions normally.
Q37. A
A binding price ceiling can create a shortage because the controlled price is below equilibrium. When consumers want more than sellers are willing to provide, incentives may develop for unofficial transactions.
Q38. D
Black-market transactions can create risks for buyers and sellers because they occur outside the normal legal framework. Consumers may also have less protection and information about the products they purchase.
Q39. B
When a legal price is kept below the equilibrium level, the shortage may create an incentive for some sellers to find unofficial ways of charging a higher effective price.
Q40. C
Black markets can emerge when legal restrictions prevent market participants from freely responding to demand and supply. The resulting shortage or unmet demand can encourage unofficial exchanges.
Q41. D
Black-market activity is often associated with attempts to bypass restrictions relating to price, quantity, access, or legal availability. It demonstrates how incentives can influence people’s economic behaviour.
Q42. A
The possibility of black markets shows that controlling prices can have effects beyond the officially stated price. If a legal price creates a shortage, unofficial transactions may develop as buyers and sellers try to meet unmet demand.
Topic 7: Market Failure
Q43. B
Market failure occurs when the outcome produced by normal market forces does not result in an efficient allocation of resources or does not adequately reflect important costs and benefits affecting society.
Q44. D
Externalities, information asymmetry, and public goods are important examples of situations that can lead to market failure. In these situations, ordinary market transactions may not fully capture the wider effects of economic activity.
Q45. A
Market failure does not mean that markets always fail. It refers to particular situations in which market outcomes may not produce an efficient or socially desirable result.
Q46. C
When economic decisions affect people who are not directly involved in a transaction, or when one side has significantly better information, the market price may not fully reflect the true social costs or benefits.
Q47. B
Governments may sometimes intervene to address market failures. Possible measures depend on the type of problem and may include regulation, taxes, subsidies, information requirements, or public provision.
Q48. D
Individual buyers and sellers generally consider their own costs and benefits. However, these private decisions may not include all the effects imposed on other people or society, which can contribute to market failure.
Q49. C
Studying market failure helps us understand why some economic problems cannot be addressed effectively through ordinary market exchange alone. It also explains the possible role of government and other institutions.
Topic 8: Externalities
Q50. A
An externality occurs when the production or consumption of a good or service affects a third party who is not directly involved in the transaction.
Q51. C
Pollution from a factory is an example of a negative externality when it harms nearby people who are not directly involved in buying or selling the factory’s products. The affected people bear a cost without being part of the transaction.
Q52. D
A positive externality occurs when an economic activity creates benefits for people who are not directly involved in the transaction. These benefits may not be fully reflected in the market price.
Q53. B
A negative externality creates an external cost for others. If producers consider only their private production costs, the market price may fail to reflect the full cost imposed on society.
Q54. A
Vaccination can create benefits beyond the person receiving it because it may also reduce the spread of disease to other people. This wider benefit is an example of a positive external effect.
Q55. D
Externalities show that economic activities can have consequences beyond the direct buyer and seller. These additional effects may be positive or negative.
Q56. C
Governments may use policies such as regulations, taxes, or incentives to address certain externalities. The appropriate response depends on the nature and extent of the external effect.
Topic 9: Information Asymmetry
Q57. B
Information asymmetry exists when one party involved in an economic transaction has more or better information than the other party. This difference can affect decisions and market outcomes.
Q58. D
A seller of a used product may know about defects that are not immediately visible to the buyer. The seller therefore has more information about the product’s actual condition.
Q59. A
When consumers cannot accurately judge the quality of a product, they may make decisions based on incomplete information. This can reduce trust and affect the functioning of the market.
Q60. C
Warranties, labels, certifications, product information, and disclosure requirements can help consumers make better-informed decisions and reduce the effects of information asymmetry.
Q61. B
Information asymmetry can make it difficult for buyers to distinguish between high-quality and low-quality products. This may reduce confidence in the market and influence purchasing decisions.
Q62. D
Improved information helps consumers compare products, understand quality and make more informed choices. Better information can therefore improve the functioning of markets.
Q63. A
Consumer protection measures and information-disclosure requirements can help reduce the information gap between buyers and sellers. They can make transactions more transparent and help consumers make informed decisions.
Topic 10: Public Goods
Q64. C
Public goods have characteristics that make it difficult to exclude people from benefiting from them and, in many cases, one person’s use does not substantially reduce the availability of the benefit to others.
Q65. A
Street lighting is commonly used to illustrate public-good characteristics because people in the surrounding area can benefit from the lighting without each individual necessarily purchasing the service separately.
Q66. D
The free-rider problem occurs when people can benefit from a good or service without directly paying for its provision. This can make it difficult for private markets to provide some public goods efficiently.
Q67. B
If people can receive the benefits of a good without paying, a private provider may find it difficult to collect enough revenue to cover the cost of providing it.
Q68. C
Government provision can help make socially useful public goods available when private market incentives may not provide them adequately because of the free-rider problem or other characteristics.
Q69. D
Public goods differ from ordinary private goods because their benefits can be available to many people, and excluding non-payers may be difficult or costly in certain cases.
Q70. A
National defence is a commonly cited example of a public good because protection provided by national defence generally benefits the population as a whole rather than being limited to individual paying consumers.
Topic 11: Necessities, Luxuries, Perishables and Consumer Expectations
Q71. B
Necessities are goods that people generally consider important for everyday life. Consumers may continue purchasing them even when their income or prices change, although the quantity purchased can still change.
Q72. D
Luxury goods are generally associated with discretionary spending rather than basic needs. Their demand can be more responsive to changes in income because consumers may increase or reduce such purchases more readily.
Q73. A
Perishable goods are goods that can lose quality or become unusable relatively quickly. Fresh fruits, vegetables, milk, and similar products require careful handling, storage, and timely sale.
Q74. C
Consumer expectations about future prices can influence current demand. If consumers expect prices to rise, they may increase current purchases to avoid paying a higher price later.
Q75. B
Different types of goods can have different demand responses. Consumers generally treat essential necessities differently from discretionary luxury goods when making spending decisions.
Q76. D
Perishability affects market decisions because such goods cannot normally be stored for long periods without loss of quality. Sellers therefore need to consider timing, storage, and expected demand.
Q77. C
Expectations about future prices, income, or availability can influence present purchasing decisions. Consumers may change when and how much they buy based on what they expect to happen in the future.
Topic 12: Market Interaction – Demand, Supply and Price Signals
Q78. A
Markets coordinate the decisions of buyers and sellers through demand, supply, and prices. Price changes provide signals that can influence both consumer purchases and producer decisions.
Q79. C
When demand increases relative to supply, the product becomes relatively more scarce at the existing price. This can push the price upward and give producers an incentive to increase production where possible.
Q80. B
When demand falls, sellers may find that fewer consumers are willing to purchase the product at the existing price. This can create downward pressure on price and may encourage producers to reduce output.
Q81. D
Prices can act as signals of relative scarcity and demand. A higher price may indicate strong demand, limited supply, or both, and this information can influence the decisions of buyers and sellers.
Q82. A
Demand and supply interact continuously in markets. A change in either demand or supply can affect the market price and quantity, leading buyers and sellers to adjust their decisions.
Q83. C
Price signals affect both sides of a market. Consumers may change the quantity they purchase, while producers may change the quantity they produce in response to changing prices.
Q84. D
The interaction of demand and supply helps determine market outcomes. Prices play an important coordinating role by providing information and incentives to consumers and producers.
Quick Answer Key
| Question | Answer | Question | Answer | Question | Answer | Question | Answer |
| Q1 | B | Q22 | A | Q43 | B | Q64 | C |
| Q2 | D | Q23 | C | Q44 | D | Q65 | A |
| Q3 | A | Q24 | B | Q45 | A | Q66 | D |
| Q4 | C | Q25 | D | Q46 | C | Q67 | B |
| Q5 | B | Q26 | A | Q47 | B | Q68 | C |
| Q6 | D | Q27 | D | Q48 | D | Q69 | D |
| Q7 | A | Q28 | C | Q49 | C | Q70 | A |
| Q8 | C | Q29 | B | Q50 | A | Q71 | B |
| Q9 | A | Q30 | D | Q51 | C | Q72 | D |
| Q10 | D | Q31 | A | Q52 | D | Q73 | A |
| Q11 | B | Q32 | C | Q53 | B | Q74 | C |
| Q12 | C | Q33 | B | Q54 | A | Q75 | B |
| Q13 | D | Q34 | A | Q55 | D | Q76 | D |
| Q14 | A | Q35 | D | Q56 | C | Q77 | C |
| Q15 | B | Q36 | C | Q57 | B | Q78 | A |
| Q16 | D | Q37 | A | Q58 | D | Q79 | C |
| Q17 | C | Q38 | D | Q59 | A | Q80 | B |
| Q18 | A | Q39 | B | Q60 | C | Q81 | D |
| Q19 | B | Q40 | C | Q61 | B | Q82 | A |
| Q20 | C | Q41 | D | Q62 | D | Q83 | C |
| Q21 | D | Q42 | A | Q63 | A | Q84 | D |