Topic 1: Introduction to Markets
1. A market can exist even when buyers and sellers do not meet physically, provided they can interact through some system of exchange.
2. If a product has many sellers, the price of that product must always be lower than the price charged by a single seller.
3. Prices can help buyers decide how much of a good to purchase and producers decide how much to produce.
4. A market can coordinate the activities of buyers and sellers without requiring every participant to know the plans of all other participants.
5. If consumers suddenly stop purchasing a product, producers are likely to receive a signal that they may need to change their production decisions.
6. Markets are useful only for physical goods and cannot coordinate the exchange of services.
7. The presence of buyers and sellers alone guarantees that a market will always produce the best possible outcome for society.
Topic 2: Demand
8. A student’s desire to buy a costly smartphone becomes demand only when the student is willing and able to purchase it.
9. If the price of a good increases, its quantity demanded generally increases because consumers want to spend more when prices are higher.
10. A fall in the price of a product can lead to a movement along the same demand curve rather than a complete shift of the demand curve.
11. If consumers’ incomes rise and they buy more of a normal good at the existing price, this can indicate an increase in demand.
12. A change in the price of a good always shifts its entire demand curve.
13. If consumers expect the price of a product to rise sharply next month, they may increase their present demand for it.
14. The demand for every product must fall whenever consumers’ incomes rise.
Topic 3: Supply
15. If the market price of a product rises, producers may have a greater incentive to supply more of that product, other things remaining unchanged.
16. An increase in the cost of raw materials can encourage producers to supply more at every possible price.
17. A technological improvement that reduces production costs can increase the quantity producers are willing to supply.
18. A movement along the supply curve can occur when the price of the good itself changes, while other relevant factors remain unchanged.
19. If farmers expect the price of their crop to be much higher in the future, they may decide to hold back some of the current supply.
20. A decrease in the number of producers must always cause the supply of a product to increase.
21. An increase in supply means that producers are willing to supply a larger quantity at the same price than before.
Topic 4: Market Equilibrium
22. Market equilibrium occurs when the quantity demanded equals the quantity supplied at a particular price.
23. If the market price is below the equilibrium price, a shortage may arise because buyers want to purchase more than sellers are willing to provide.
24. An equilibrium price is permanently fixed and cannot change even when demand or supply changes.
25. If demand increases while supply remains unchanged, the equilibrium price will generally tend to rise.
26. If supply increases while demand remains unchanged, the equilibrium quantity will generally tend to increase.
27. At every market price, quantity demanded must equal quantity supplied because buyers and sellers automatically adjust their decisions immediately.
28. Equilibrium represents a situation in which there is no tendency for the market price to change because planned demand and planned supply are equal.
Topic 5: Surplus and Shortage
29. A surplus can occur when producers supply more of a good than consumers are willing to buy at the prevailing price.
30. When a shortage exists, sellers may have an incentive to raise prices if they observe that many buyers are competing for limited supplies.
31. A surplus generally puts upward pressure on prices because sellers have too few goods available to sell.
32. If a government fixes a price below the market equilibrium price, the resulting shortage may cause some consumers to be unable to purchase the good.
33. A shortage means that producers have supplied more goods than consumers want at the prevailing price.
34. Surplus and shortage are useful signals because they indicate that the current market price may not be balancing planned demand and supply.
35. Whenever a shortage occurs, it is guaranteed that the market will immediately return to equilibrium without any changes in price, supply or demand.
Topic 6: Price Controls and Black Markets
36. A price ceiling is a maximum legal price that sellers are allowed to charge for a particular good or service.
37. A price ceiling set above the equilibrium price must always create a shortage because consumers will demand more at the higher legal price.
38. A binding price ceiling below equilibrium can create excess demand because consumers want more than producers are willing to supply.
39. When a controlled price creates a shortage, some buyers may attempt to obtain the product through unofficial channels.
40. Black markets can emerge when legal restrictions prevent the market price from adjusting to a level that balances demand and supply.
41. A price ceiling always benefits every consumer equally because every consumer is guaranteed access to the product at the lower price.
42. Government intervention in prices can sometimes create unintended consequences even when the policy is introduced to make an essential good more affordable.
Topic 7: Market Failures
43. A market failure can occur when the market outcome does not lead to an efficient or socially desirable allocation of resources.
44. A factory that pollutes a nearby river may impose costs on people who are not directly involved in buying or selling its product.
45. Every negative externality automatically makes the product completely undesirable to society.
46. Information asymmetry can create problems when one side of a transaction has significantly more relevant information than the other.
47. Public goods may be underprovided by private markets because people can sometimes benefit from them without directly paying for them.
48. If a market is operating freely, it cannot experience any form of market failure.
49. Government action may sometimes be considered when market outcomes create significant external costs or when important public goods are insufficiently provided.
Topic 8: Types of Goods and Their Effect on Demand
50. Demand for necessities may remain relatively strong even when their prices increase because consumers may find it difficult to reduce their consumption substantially.
51. A luxury good is a product that every household must purchase regardless of its income level.
52. Perishable goods may need to be sold quickly because their quality or usefulness can decline over time.
53. If consumers consider a product a luxury, an increase in income may lead to a relatively large increase in their demand for it.
54. The fact that a good is perishable means that its price can never change.
55. Expectations about future availability can influence present demand for goods, particularly when consumers fear that supplies may become limited.
56. The classification of a good as a necessity or luxury can never differ between consumers because these categories are completely independent of people’s circumstances.
Topic 9: Expectations and Prices
57. Expectations about future prices can influence consumers’ current purchasing decisions.
58. If consumers expect a product’s price to rise soon, they may postpone buying it because waiting always makes the product cheaper.
59. Expectations about future shortages can lead some consumers to purchase more of a product in the present.
60. Producers’ expectations about future prices can influence whether they sell their goods now or hold some stock for later.
61. Expectations matter only after a future event actually happens and therefore cannot affect present market decisions.
62. If buyers expect their future income to fall, they may become more cautious about present spending on some goods.
63. Because expectations are about the future, they can never affect present demand or supply.
Topic 10: Price as a Market Signal
64. A rising price can signal to producers that consumers may be willing to buy more, creating an incentive to increase production.
65. Prices provide information only to sellers and have no role in guiding consumers’ choices.
66. A higher price for a scarce product can encourage consumers to consider alternatives or reduce their purchases.
67. Price signals can help producers decide where to direct scarce resources.
68. If the price of a product falls because supply has increased, producers may receive a signal that producing the same quantity as before may be less profitable.
69. Prices always provide complete and perfect information about every economic condition affecting a market.
70. The signalling role of prices can help coordinate decisions made independently by buyers and sellers.
Topic 11: Putting Demand and Supply Together
71. If demand for a product increases while supply remains unchanged, both the equilibrium price and equilibrium quantity will generally increase.
72. If supply decreases while demand remains unchanged, the equilibrium price will generally fall because the product becomes less available.
73. An increase in supply can put downward pressure on equilibrium price when demand remains unchanged.
74. If both demand and supply increase, equilibrium quantity will generally increase, but the effect on equilibrium price depends on the relative size of the changes.
75. Whenever demand increases, equilibrium price must fall regardless of what happens to supply.
76. A simultaneous decrease in demand and supply can make the final equilibrium price difficult to determine without knowing the relative magnitude of the changes.
77. Understanding the interaction of demand and supply helps explain why the market price and quantity can change over time.
Topic 12: Real-Life Applications
78. A poor harvest caused by adverse weather can reduce the supply of agricultural products and put upward pressure on their prices.
79. If demand for a product rises during a festival while its supply remains unchanged, its market price may increase.
80. An increase in the supply of vegetables, with demand unchanged, must always cause vegetable prices to increase.
81. If consumers suddenly stop buying a product while producers continue supplying the same quantity, a surplus may develop.
82. A shortage of an essential product can create pressure for prices to rise when prices are allowed to adjust freely.
83. Seasonal changes can never affect demand or supply because markets operate independently of time and seasons.
84. Real-life market outcomes can be understood more clearly by examining how demand, supply, expectations, government intervention and other factors interact.
Tabular Answer Key
| Q. No. | Ans. | Q. No. | Ans. | Q. No. | Ans. | Q. No. | Ans. |
| 1 | T | 22 | T | 43 | T | 64 | T |
| 2 | F | 23 | T | 44 | T | 65 | F |
| 3 | T | 24 | F | 45 | F | 66 | T |
| 4 | T | 25 | T | 46 | T | 67 | T |
| 5 | F | 26 | T | 47 | T | 68 | T |
| 6 | F | 27 | F | 48 | F | 69 | F |
| 7 | T | 28 | T | 49 | T | 70 | T |
| 8 | T | 29 | T | 50 | T | 71 | T |
| 9 | F | 30 | T | 51 | F | 72 | F |
| 10 | T | 31 | F | 52 | T | 73 | T |
| 11 | T | 32 | T | 53 | T | 74 | T |
| 12 | F | 33 | F | 54 | F | 75 | F |
| 13 | T | 34 | T | 55 | T | 76 | T |
| 14 | F | 35 | F | 56 | F | 77 | T |
| 15 | T | 36 | T | 57 | T | 78 | T |
| 16 | F | 37 | F | 58 | F | 79 | T |
| 17 | T | 38 | T | 59 | T | 80 | F |
| 18 | T | 39 | T | 60 | T | 81 | T |
| 19 | F | 40 | T | 61 | F | 82 | T |
| 20 | F | 41 | F | 62 | T | 83 | F |
| 21 | T | 42 | T | 63 | F | 84 | T |