ECON 1000 Chapter Notes - Chapter 4: Perfect Competition, Demand Curve, Inferior Good

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2 Feb 2017

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Supply and demand refer to the behavior of people as they interact w/ one another in competitive markets. Goods offered for sale are all exactly the same. The demand curve: the relationship b/w price & quantity demanded. Individual demand: market demand: sum of all the individual demands for a particular good/service. Sum individual demand curves horizontally to obtain market demand curve. Normal good: good for which, other things equal, an increase in income leads to an increase in demand. Inferior good: good for which, other things equal, an increase in income leads to a decrease in demand. Substitutes: two goods for which an increase in the price of one leads to an increase in the demand for the other. Complements: two goods for which an increase in the price of one leads to a decrease in the demand for the other.

Related Questions

13. One of the limitations of Five Forces is that:

a. These tools reduce producer surplus

b. For one firm to increase profit, it takes it from other participants in the industry

c. Does not provide a firm with sustainable competitve advantage

d. both b & c.

15. All these are characterisctics of a monopoly except,

a. There is one seller of the product

b. Has few substitutes

c. Controls a large share of the market

d. Controls a small share of the market

22. Industries with high barriers to entry

a. Pushes profits to normal returns

b. increases the likelihood of firms entering the industry

c. help firms sustain profits

d. increases the number of competitors

14. How does Ebay differ from an economist's view of a perfect competitve market?

a. Ebay has few buyers whereas perfect competitve industry assumes many buyers

b. Ebay has few sellers whereas perfect competitve industry assumes many sellers

c. There is limited information in ebay whereas perfect competitive industry assumes full information for both buyers and sellers

d. There is no difference between these two markets

26. Low cost strategies are usually found in industries where

a. Products are not particularly differentiated

b. Price competion tends to be fierce

c. Both a and b

d. None of the above

Cigarettes - Price Elasticity of demand = - 0.67

A. Cigarettes

B. Alcohol

C. Sodas

D. None of the above

2. The demand for insulin will be ______________ than the demand for a Caribbean cruise in general

a. More elastic

b. More inelastic

c. Less elastic

d. Less inelastic

Question 26 pts

Which of the following is not a reason why specialization and trade are beneficial to society?

	Specialization fosters learning by doing, thus lowering the unit-costs of products
	Firms and workers become less dependent on others for producing goods and services

	The total output of economic goods may be increased even without any increase in resources
	Scarce resources are utilized more efficiently by exploiting differences among them

Question 27 pts

Laissez-faire capitalism limits the government's economic functions to the following, except:

	Protecting private property rights
	Establishing a legal environment to enforce contracts among individuals

	Setting prices of individual goods and services
	Preventing individuals and firms from coercing others

Question 28 pts

A production system where various workers concentrate on different specialized tasks to contribute towards a whole product is referred to as:

	Roundabout production
	A coincidence of wants

	Freedom of enterprise
	Division of labor

Question 29 pts

The market system is said to be characterized by "consumer sovereignty." This is because:

	A sovereign government determines which consumer goods will be produced
	Firms must match their production decisions to the consumers' choices

	The prices of consumer goods are regulated by a sovereign government
	Consumer goods are considered to be more important than capital goods

Question 30 pts

Consumers express self-interest when they:

	Seek the lowest price for a product
	Reduce business losses

	Exclude others in their thinking
	Collect economic profits

Question 311 pts

Refer to the above graph with three demand curves. An "increase in quantity demanded" would be illustrated by a change from:

	Point 5 to point 1
	Point 4 to point 1

	Point 2 to point 5
	Point 4 to point 6

Question 32 pts

The table below shows the weekly demand for hamburger in a market where there are just three buyers.

Refer to the above table. At a price of $6, the weekly market quantity demanded for hamburger is:

	17
	23

	24
	18

Question 33pts

If farmers withhold some of their current corn harvest from the market because they anticipate a higher price of corn in the near future, then this would cause a(n):

	Movement up along the current supply curve of corn
	Movement down along the current supply curve of corn

	Leftward shift in the current supply of corn
	Rightward shift in the current supply of corn

Question 34 pts

Which of the following will not cause the supply curve to shift?

	A technological change in the production of the good
	A change in the prices of other goods that producers could be producing

	A change in the costs of resources needed to produce the good
	A change in the price of the good

Question 35 pts

All of the following would affect the position of the supply curve for cranberries, except the:

	Price of agricultural land for cranberries
	Cost of fertilizers for cranberry production

	Popularity of cranberry drinks
	Development of a new pest control for cranberries

Question 36 pts

When high-school and college graduates apply for jobs in the labor markets,

	Job applicants and employers are both "buyers".
	Job applicants are the "sellers" while employers are the "buyers".

	Job applicants and employers are both "sellers".
	Job applicants are the "buyers" while employers are the "sellers".

Question 37 pts

Refer to the figure above, which shows three supply curves for corn. Which of the following would cause the supply of corn to shift from S₁ to S₂?

	A decrease in consumer incomes, assuming corn is a normal good
	The development of a more effective insecticide against corn rootworm

	An increase in the price of fertilizer
	A change in consumer tastes away from cornbread

Question 38 pts

Which is of the following statements is correct?

	If demand increases, then price will decrease
	If demand decreases, then price will decrease

	If price decreases, then demand will decrease
	If price increases, then demand will decrease

Question 39 pts

Which would be a likely cause of an increase in the demand for pizza?

	A decrease in the price of hamburger sandwiches
	A health report showing eating pizza reduces stress

	A reduced desire for take-out and fast-food dining
	A decrease in the prices of cheese, pepperoni, and mushrooms

Question 40 pts

A market for a product reaches equilibrium when:

	Price falls further after there is a shortage
	The price rises further after there is a surplus

	Buyers intend to buy a quantity equal to the quantity that sellers intend to sell
	The actual quantity bought by buyers equals actual quantity sold by sellers

Question 41 pts

A higher price reduces the quantity demanded for a product because:

	Individuals can afford less of the product and will switch to substitutes
	The financial assets of individuals increase

	Individuals will buy more of the product and less of its substitutes
	The purchasing power of individuals increases

Question 42 pts

The idea of the Law of Demand, as applied to electric cars, assumes which of the following to be constant?

	Price of electric cars
	How much sellers are charging customers for electric cars

	Price of gasoline cars
	Quantity of electric cars demanded by buyers

Question 43 pts

Use the following graph of the demand for coffee:

Refer to the above diagram of three demand curves for coffee. An increase in the price of coffee, other factors constant, would cause a:

	Movement from point a to point b
	Movement from point b to point a

	Shift from D₁ to D₂
	Shift from D₁ to D₃

Question 44 pts

Which of the following factors will decrease the current demand for a product?

	A decrease in the current price of a complementary product
	A decrease in the current price of a substitute product

	An increase in the current price of a substitute product
	An expected increase in the future price of the product

Question 45pts

In competitive markets, a surplus or shortage will:

	Cause shifts in the demand and supply curves that tend to eliminate the surplus or shortage
	Cause changes in the quantities demanded and supplied that tend to intensify the surplus or shortage

	Cause changes in the quantities demanded and supplied that tend to eliminate the surplus or shortage
	Never exist because the markets are always at equilibrium

Question 46 pts

Which of the following would cause a leftward shift in the supply curve for car washes?

	A decrease in taxes on car washes
	An increase in the price of car washing equipment

	A decrease in the price of water
	An increase in the number of cars in the city

Question 47pts

The market system automatically corrects a surplus condition in a competitive market by:

	Raising the price of the commodity in question while decreasing the quantity demanded
	Raising the price of the commodity in question while increasing the quantity demanded

	Reducing the price of the commodity in question while increasing the quantity demanded
	Reducing the price of the commodity in question while decreasing the quantity demanded

Question 48 pts

A leftward shift of the supply curve for oil in the United States is most likely to result from:

	A decrease in the world price of oil
	An increase in the costs of exploration and drilling for oil

	An increase in the subsidy for oil exploration and drilling
	A decrease in the fees that oil companies must pay for drilling licenses

Question 49 pts

A fall in the price of milk, used in the production of ice cream, will:

	Decrease the supply of ice cream
	Have no effect on the supply of ice cream

	Increase the supply of ice cream
	Cause a movement along the supply curve of ice cream

Question 50 pts

Refer to the above graph, which shows the market for beef where demand shifted from D₁ and D₂. The change in equilibrium from E₁ to E₂ is most likely to result from:

	An increase in the cost of cattle feed
	A decrease in consumer incomes

	A decrease in the tax on beef products
	An increase in the price of pork

Please If you can highlight or mark the correct answer

Activity : 2 point(s)

If P = $8 and MC = $5 + 0. 2Q, the competitive firm's profit-maximizing level of output is:

0.2

Activity : 2 point(s)

In the long run, firms will exit a perfectly competitive industry if:

excess profits exceed zero.

excess profits are less than zero.

total profit equals zero.

excess profits equal zero.

Activity : 2 point(s)

In long-run equilibrium, monopoly prices are set at a level where:

price exceeds marginal revenue.

industry demand equals industry supply.

industry demand is less than industry supply.

price exceeds average revenue.

Activity : 1 point(s)

The kinked demand curve theory of oligopoly assumes that rival firms:

react to price increases.

react to price increases and decreases.

do not react to price changes.

react to price decreases.

Activity : 1 point(s)

In oligopoly markets, the market demand curve is:

upward sloping.

downward sloping.

horizontal.

vertical.

Activity : 2 point(s)

The level of competition in a given market tends to increase if:

minimum efficient scale of firms increases.

the number of substitutes increases.

significant barriers to exit are imposed.

the number of potential entrants decreases.

Activity : 2 point(s)

In the short run, the:

firm has complete flexibility with respect to input use.

availability of all inputs is fixed.

operating period is longer than the planning period.

availability of at least one input is fixed.

Activity : 1 point(s)

In both monopolistic competition and oligopoly markets:

there is easy entry and exit.

consumers perceive differences among the products of various competitors.

economic profits may be earned in the long run.

there are many sellers.

Activity : 1 point(s)

In oligopoly equilibrium:

MC = AC

MC > AC

MR = MC

MC < AC

Activity : 2 point(s)

A firm will earn normal profits when price:

equals average total cost.

equals average variable cost.

equals marginal cost.

exceeds minimum average total cost.

Activity : 2 point(s)

Economic costs include both explicit and implicit cost. When analyzing costs the next-best use of a given asset is called:

current cost.

replacement cost.

historical cost

opportunity cost.

Activity : 2 point(s)

In a perfectly competitive market:

sellers and buyers have perfect information.

entry and exit are difficult.

c. sellers produce similar, but not identical products.

each seller can affect the market price by changing output.

Activity : 2 point(s)

In competitive market equilibrium, the firm's:

MR = MC and P > AR

MR = MC and P > AC

AR = AC and MR > MC

P = MR = AR = AC = MC

Activity : 1 point(s)

A firm should increase advertising if the net marginal revenue derived is:

equal to the marginal cost of advertising.

greater than the marginal cost of advertising.

greater than zero.

less than the marginal cost of advertising.

Activity : 2 point(s)

For a firm in perfectly competitive market equilibrium:

a replacement cost.

an implicit cost.

an explicit cost.

an opportunity cost.

Activity : 1 point(s)

In a monopolistically competitive industry, firms:

offer products that are not perfect substitutes.

make decisions in light of expected reactions from other firms.

set price equal to marginal cost.

are price takers.

Activity : 2 point(s)

Fixed costs include:

variable labor expenses.

output-related energy costs.

output-related raw material costs.

variable interest costs for borrowed capital.

Activity : 2 point(s)

A monopolist maximizes profits by producing a level of output when:

P = AC

P > MC

P < MC

P = MC

Activity : 2 point(s)

The demand curve for a unique product without substitutes is:

upward sloping.

downward sloping.

horizontal.

vertical.

Activity : 2 point(s)

At the point of minimum Average Variable Cost:

historical cost.

incremental cost.

current cost.

Activity : 2 point(s)

In the decision process, management should ignore:

implicit costs.

historical costs.

sunk costs.

incremental costs.

Activity : 1 point(s)

At the profit maximizing level of output for a monopolist:

P = AR and AR = AC

P = MC and MR > MC

P = MR and AC = MC

P > MC and MR = MC

Activity : 2 point(s)

In perfectly competitive markets, profits are maximized when:

MC=AC

P>AC

MR=MC

MR=P

Activity : 2 point(s)

Graphically, competitive market supply is measured by the:

vertical difference of competitor demand curves.

vertical sum of competitor demand curves.

horizontal difference of competitor MC curves.

horizontal sum of competitor MC curves.

Activity : 2 point(s)

For a firm in perfectly competitive market equilibrium:

MR < AR

P > AC

P > MR

P = MC

Activity : 2 point(s)

In the long run, firms will offer supply at the point where P = MR = MC if:

MC is rising.

MC is falling.

MC is constant.

P > AC

Activity : 2 point(s)

The firm demand curve in a competitive market is:

upward sloping.

downward sloping.

horizontal.

vertical.

Activity : 1 point(s)

Monopolistic competition is characterized by:

homogeneous products.

barriers to entry and exit.

perfect dissemination of information.

few buyers and sellers.

Activity : 2 point(s)

Marginal cost equals:

average variable cost at its maximum point.

the change in total fixed cost divided by the change in quantity.

the change in total variable cost divided by the change in quantity.

total cost divided by quantity.

Activity : 2 point(s)

In the short run, a perfectly competitive firm will shut down and produce nothing if:

excess profits equal zero.

total cost exceeds total revenue.

total variable cost exceeds total revenue.

the market price falls below the minimum average total cost.

Activity : 2 point(s)

For a monopoly in equilibrium:

MR = MC

MC â¤ AC

MR â¤ AC

P â¥ AC

Activity : 2 point(s)

When profits are maximized in a competitive market, average cost is always:

rising.

falling.

constant.

none of these.

Activity : 2 point(s)

So long as P > AVC, the competitive firm's short-run supply curve is equal to:

AVC

none of these.

Activity : 1 point(s)

The four-firm concentration ratio will rise following:

a rise in imports.

a fall in imports.

a merger between the two largest firms in the industry.

small firm entry.

Activity : 2 point(s)

In oligopoly markets, the market demand curve is:

point on the short-run marginal cost curve.

short-run average cost of production.

long-run average cost of production.

point on the short-run average cost curve.

Activity : 2 point(s)

The following market cannot be described as perfectly competitive:

the unskilled labor market.

the milk market.

discount retailing.

the agricultural grain markets.

Activity : 2 point(s)

In the long run, the:

availability of at least one input is fixed.

firm's operating decisions are typically constrained by prior capital expenditures.

availability of all but one input is fixed.

firm has complete flexibility with respect to input use.

Activity : 1 point(s)

The industry supply curve is derived through the horizontal summation of firm:

average cost curves.

marginal revenue curves.

marginal cost curves.

demand curves.

Activity : 2 point(s)

Price and product quality competition tends to be vigorous when:

entry barriers are low.

potential entrants are few.

product quality information is scarce.

the number of active sellers is few.

Activity : 1 point(s)

A perfectly functioning cartel results in:

oligopoly.

monopoly.

perfect competition.

monopolistic competition.

Activity : 1 point(s)

When prices in monopolistically competitive markets exceed those in a perfectly competitive equilibrium, this difference is the cost of:

information.

market power.

inefficiency.

product differentiation.

Activity : 1 point(s)

In the short run, a monopolist will:

shut down if price equals average total cost.

shut down if price is less than average total cost.

shut down if price is less than average variable cost.

never shut down.

Activity : 2 point(s)

In the short run, a perfectly competitive firm will shut down and produce nothing if:

typically involve multiple units of output.

do not vary across decision alternatives.

come into play when judging the costs of adding a new product line, advertising campaign, production shift, or organization structure.

play a role in determining the optimal course of action.

Activity : 2 point(s)

At the point of minimum AVC:

MC is falling.

MC is constant.

MC is rising.

MC = AVC.

Activity : 2 point(s)

A monopsony is a market with:

many sellers.

one buyer.

many buyers.

one seller.

Activity : 1 point(s)

The demand curve faced by a firm in a monopolistically competitive industry is:

the downward sloping industry demand curve.

downward sloping.

more elastic than the perfectly competitive firm's demand curve.

horizontal.

Activity : 2 point(s)

Perfect competition always prevails in markets with:

few buyers and sellers.

many buyers and sellers.

an even balance of power between sellers and buyers.

a single buyer.

Activity : 2 point(s)

If the slope of a long-run total cost function decreases as output increases, the firm's underlying production function exhibits:

constant returns to scale.

decreasing returns to scale.

decreasing returns to a factor input.

increasing returns to scale.

Activity : 2 point(s)

Average cost declines as output expands in a production process with:

constant returns to scale.

decreasing returns to scale.

decreasing returns to a factor input.

increasing returns to scale.

Activity : 2 point(s)

If the productivity of variable factors is decreasing in the short-run:

marginal cost must increase as output increases.

average cost must decrease as output increases.

average cost must increase as output increases.

marginal cost must decrease as output increases.

ECON 1000 Chapter Notes - Chapter 4: Perfect Competition, Demand Curve, Inferior Good

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