What is 'Issue Price'?

The correct answer is B, Alfred Marshall. In his Principles of Economics he defined consumer surplus as the difference between what a buyer is willing to pay for a good and what he actually pays, and he also gave the standard measure of elasticity of demand, which is why his name attaches to both ideas. Option A is wrong because Adam Smith, in The Wealth of Nations of 1776, is remembered for the division of labour, the invisible hand and the foundations of classical economics. Option C is wrong because David Ricardo is associated with comparative advantage, the theory of rent and the law of diminishing returns. Option D is wrong because J. M. Keynes wrote the General Theory of 1936 and belongs to macroeconomics, with effective demand, the multiplier and the case for public spending in a depression.

The correct answer is A, duopoly. A duopoly is the limiting case of oligopoly in which only two firms supply the whole market, so each one frames its price and output with a direct eye on the other. Option B is wrong because a monopsony is a market with a single buyer, and the mistake of reading the prefix mono as two is exactly what the question is testing. Option C is wrong because an oligopsony is a market with a few buyers, again on the buying side. Option D is wrong because monopolistic competition has a large number of sellers with differentiated products. Learn the word endings: the ending poly counts sellers, as in monopoly, duopoly and oligopoly, and the ending psony counts buyers, as in monopsony and oligopsony.

The correct answer is A. A monopoly is a market with one seller whose product has no close substitute, so the firm is the industry and is a price maker: it chooses the price and lets the market decide the quantity, or the reverse. The position survives only because entry is blocked by a patent, a licence, the ownership of a key raw material or a grant from the state. Option B is wrong because a large number of sellers of a homogeneous product is the definition of perfect competition. Option C is wrong because a single buyer facing many sellers is a monopsony, the mirror image of a monopoly. Option D is wrong because free entry and exit would destroy a monopoly at once, since new firms would come in to share the profit; it is a feature of perfect competition and of monopolistic competition instead.

The correct answer is B. The market clears where the demand and supply curves cut each other, that is where the quantity buyers wish to buy is exactly the quantity sellers wish to sell; the price there is the equilibrium price and the quantity the equilibrium quantity. Above that price the unsold surplus forces sellers to cut the price, and below it the shortage lets them raise it, so the market returns to equilibrium on its own through the price mechanism Adam Smith called the invisible hand. Option A is wrong because the highest profit of one seller has nothing to do with the clearing of the market. Option C is wrong because a government ceiling is an administered price imposed from outside and usually creates a shortage, as price control often does. Option D is wrong because elasticity describes the shape of a curve, not the point of intersection.

The correct answer is B. A higher price covers the rising cost of producing extra units and promises a larger profit, so sellers offer more, and the supply curve therefore rises from left to right. Option A is wrong because an inverse relationship belongs to demand, not supply. Option C is wrong because a vertical supply curve means supply cannot change at all, which is true only of a fixed stock in the very short run, such as the seats in a stadium, and not of the general law. Option D is wrong because perfectly elastic supply is a special case in which any quantity is offered at one price, drawn as a horizontal line. Note also what shifts supply rather than moving along it: the cost of inputs, technology, taxes and subsidies, the prices of other goods the firm could make, and the number of sellers.