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Mathematics & Economics
Multiple Choice Questions
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Construction Economics: Market Mechanism, Asymmetric Information, and Barriers to Entry (Multiple Choice Questions Sample)


explain how the construction industry is affected by shifts in the economy.


Construction Economics
1 Define economics and give an example
Economics is a branch of science that explains how goods and services are produced, distributed and consumed. It analyzes how various players in the economy like the government, businesses and even individual citizens allocate the available scarce resources in order to satisfy their wants and needs and produce optimal output from these resources. Economics is usually divided into two branches namely, micro and macro economics. Microeconomics focuses on single consumers, households or firms behavior, how they make decisions, how their choices affect demand and how they respond to demand and price changes. It is mostly about demand and supply, efficiency and cost of producing goods and services and distribution of labor. Macroeconomics focuses on the overall economy of a country at both national and international level. It addresses issues like inflation, gross domestic product (GDP) level, fiscal and monetary policies and so on. Stock market is an example of economics where buying, selling and allocation of companies’ shares are done.
2 Explain how the market mechanism works to allocate goods such as housing.
Market mechanism is simply how demand and supply forces determine prices of goods and services in a free market. A free market is where people are able to buy and supply as much as they want at free will. However, it is prices that govern how much is supplied or bought. If much of a product or service is supplied, its price reduces thus people buy more and vice versa. In a market, resources are allocated according to demand and supply forces while using prices to determine what and how much of the resources to allocate. For example in the housing sector, if there is an overall increase in property demand in a certain area, the prices of homes in the area increase thus signaling suppliers to build more homes in the area. If there is an oversupply, the prices of the homes reduce leading to low demand of homes.
3 How might a house-building firm deal with asymmetric information

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