Test Questions with Answers
Chapter 21. Price and Value Theory.
Functions and Behaviour of Prices
Chapter 21 ― Question 1
The price of apples falls. This means for the price of oranges
- nothing
- their relative price has risen
- their relative price has fallen
- their absolute price rises
*B. Relative prices are barter prices.
Chapter 21 ― Question 2
Co-ordination failure stands for
A. a lack of government regulation
B. a lack of competition
C. a lack of collusion and the absence of a price leader
D. supplier inertia
*C. Answer D is also partly correct, but not technical enough.
Chapter 21 ― Question 3
The diamond-water paradox can be explained by the fact that
- the price of water is kept low because access to water is a human right
- diamonds are overpriced
- water is under-priced
- diamonds are expensive because their marginal utility is high
*D. This is the answer you are expected to give. In reality, C is the correct answer. Water is dramatically under-priced and over-subsidised.
Chapter 21 ― Question 4
Menu costs are
- the costs involved in inviting business partners to a restaurant
- the costs of printing a new menu
- all the costs involved in changing prices
- the costs involved in negotiations
*C. The term is derived from B. D is not comprehensive enough.
Chapter 21 ― Question 5
There are four reasons for price stickiness. Please name them.
*Co-ordination failure, unchanged costs and mark-ups, a preference for lowering quality, avoidance of menu costs.
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