Economics Test - 32

Excess Demand. When at the current price level, the quantity demanded is more than quantity supplied, a situation of excess demand is said to arise in the market. Excess demand occurs at a price less than the equilibrium price.

In case of excess demand, the demand of a commodity is more than its supply. SO in this case, there will be competition among consumers and every consumer tries to purchase more of a commodity by paying higher prices. This will tend price to rise.

Hence a) Market price rise

Deficient demand refers to the situation when aggregate demand (AD) is less than the aggregate supply (AS) corresponding to full employment level of output in the economy. The situation of deficient demand arises when planned aggregate expenditure falls short of aggregate supply at the full employment level.

Excess demand occurs when the market price falls below the equilibrium price. At this lower price, consumers are willing to purchase more of the good than producers are willing to supply, causing a shortage.

The equilibrium price is where the quantity demanded equals the quantity supplied. If the price is set below this point, the lower price makes the good more attractive to consumers, increasing the quantity demanded, while producers are less willing to supply the good at this lower price, decreasing the quantity supplied. This mismatch results in excess demand.

The Great Depression highlighted that the economy can experience prolonged unemployment and downturns. This led to a new understanding in macroeconomics, which focuses on the economy as a whole.

• The economy may suffer from long-lasting unemployment.
• A holistic approach is necessary to understand economic issues.
• Macroeconomics examines the interdependence of various sectors.
• This insight was crucial for developing economic policies to address downturns.

A capitalist economy is defined by several key features:

• Private ownership of the means of production, such as factories and machinery.
• Production is primarily aimed at selling goods in the market for profit.
• There is a system of wage labour, where individuals are paid for their work.
• Profits earned are often reinvested to expand production capabilities.

In summary, a capitalist economy operates on the principles of private ownership, market-driven production, and wage-based employment.

In a capitalist economy, the State or Government has a crucial role in various economic functions. These include:

• Framing laws that govern economic activities.
• Enforcing laws to ensure compliance and fairness.
• Engaging in production activities when necessary.
• Imposing taxes to generate revenue.
• Spending on public infrastructure such as roads, schools, and healthcare services.

These functions are essential for maintaining a stable and efficient economy, highlighting the importance of government involvement beyond mere regulation.

The correct answer is A: Inflation.Explanation:

• Macroeconomics is the branch of economics that deals with the performance, structure, and behavior of the entire economy, rather than individual markets or firms.
• Inflation is a macroeconomic concept that refers to a sustained increase in the general price level of goods and services in an economy over time.
• Inflation is an important macroeconomic indicator that affects the purchasing power of consumers, the profitability of firms, and the overall health of the economy.
• Consumer's equilibrium, price determination, and producer's equilibrium are microeconomic concepts that deal with individual markets or firms, rather than the entire economy
• Therefore, inflation is the only example of macroeconomics among the given options, making option A the correct answer.

The correct answer is D: Microeconomics deals with individual behavior.

Microeconomics is the study of how households and firms make decisions, and how they interact in markets. It focuses on the behavior of individual economic agents, such as consumers, firms, and industries. Microeconomics is concerned with the allocation of resources at the micro level, such as how households and firms decide what to produce, how much to produce, and at what price to sell their products.

Macroeconomics, on the other hand, is the study of the economy as a whole. It focuses on the behavior of aggregate variables, such as GDP, unemployment, and inflation, and how they are affected by economic policies. Macroeconomics is concerned with the overall performance of the economy and the interrelationships among the various sectors of the economy.

Microeconomics does not only deal with prices, and it is not only concerned with government decisions. While government policies can affect the behavior of individual economic agents, microeconomics also considers other factors that influence their decision-making, such as technology, tastes, and preferences.

The correct answer is C: Which are for resale.

Intermediate goods, also known as producer goods or semi-finished goods, are goods that are used as inputs in the production of other goods or services. They are typically not sold directly to households or final consumers, but rather are used as inputs in the production process by firms. Intermediate goods include raw materials, components, and partially finished goods that are used in the production of final goods.

Examples of intermediate goods include steel, cotton, and plastic, which are used to produce automobiles, clothing, and toys, respectively. Intermediate goods are typically not meant for long-term use, as they are consumed or incorporated into the production of final goods.

Capital goods, on the other hand, are goods that are used to produce other goods and services. They are durable goods, such as machinery, equipment, and buildings, that are used in the production process. Capital goods are typically meant for long-term use, as they are not consumed or used up in the production process but rather are used over a period of time to produce other goods and services.