ECONOMICS
MARKETS AND PRICES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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It is neutral.
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It is flexible.
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It prevents shortages.
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It is efficient.
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Detailed explanation-1: -A shortage is a condition where the quantity demanded is greater than the quantity supplied at the market price. There are three main causes of shortage-increase in demand, decrease in supply, and government intervention. Shortage, as it is used in economics, should not be confused with “scarcity."
Detailed explanation-2: -Which of the following is NOT a typical characteristic of a market system? Government ownership of most property resources. Which of the following is a fundamental characteristic of the market system? Property rights.
Detailed explanation-3: -If a surplus exist, price must fall in order to entice additional quantity demanded and reduce quantity supplied until the surplus is eliminated. If a shortage exists, price must rise in order to entice additional supply and reduce quantity demanded until the shortage is eliminated.
Detailed explanation-4: -The four characteristics of the price system are that it is neutral, market driven, flexible, and efficient. It is neutral because prices do not favor the producer or the consumer because the they both make choices that determine the equilibrium price.