In a competitive market where the elasticity of the market demand curve is -2, the elasticity of the supply curve is 1, and an individual firm faces a residual demand curve with an elasticity of -98. What happens to the individual firm’s residual demand curve when the number of firms serving this market declines? A) […]
How can the market demand for a product be inelastic but the demand for a particular firm is elastic? A) There is no advertising. B) There is a sufficiently large number of sellers. C) There is only one or two sellers. D) Buyers do not have complete information. ANSWER B
The model of perfect competition is valuable for A) prediction. B) comparison to other markets. C) Either A or B D) None of the above. ANSWER C
A market is perfectly competitive even if firms have the ability to set their own price as long as the price difference reflects differences in the product. Indicate whether the statement is true or false ANSWER False. If the market is perfectly competitive, there are no differences in the product.
The “Got Milk?” advertising campaign is a good example of A) advertising in a competitive market. B) how advertising in a competitive market does not pay off for a single firm. C) interest groups financed by the industry advertise for the whole industry. D) All of the above. ANSWER D
The demand curve that an individual competitive firm faces is known as its A) excess demand curve. B) market demand curve. C) residual demand curve. D) leftover demand curve. ANSWER C
Which of the following are NOT characteristics of a competitive market? A) There is freedom of entry and exit. B) There are zero transaction costs. C) There are only one or two sellers. D) Buyers and sellers have complete information. ANSWER C
If a firm operates in a perfectly competitive market, then A) all firms will advertise. B) no firms will advertise. C) the market leader will advertise. D) new firms will advertise. ANSWER B
The perfectly competitive model makes a lot of fairly unrealistic assumptions. Why do economics textbooks still talk a lot about this model? A) Many markets are close to being perfectly competitive. B) It is an important model to use as a benchmark to compare other markets structures to. C) Perfectly competitive markets maximize societal welfare. […]
A special license is required to operate a taxi in many cities. The number of licenses is restricted. More drivers want licenses than are issued. This describes a non-perfectly competitive market because A) taxi services are very different. B) firms cannot freely enter and exit the market. C) transaction costs are high. D) the government […]
