Economics Quiz: Market Structures and Externalities
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Questions and Answers

What is the term for a person who benefits from a good without paying for it?

  • Free-rider (correct)
  • Investor
  • Consumer
  • Beneficiary

Which of the following best describes an externality?

  • The benefit one party receives at the cost of another (correct)
  • An insurance premium paid by risk-averse individuals
  • An unrelated market fluctuation affecting prices
  • A direct cost incurred by a party without compensation

Adverse selection occurs when which type of individuals are more likely to purchase insurance?

  • Low-risk individuals
  • Moderate-risk individuals
  • Individuals with prior insurance
  • High-risk individuals (correct)

Which of the following is NOT a cause of income inequality?

<p>Government subsidies (C)</p> Signup and view all the answers

What effect do tariffs have on trade?

<p>They impose taxes on imports (D)</p> Signup and view all the answers

Which of the following is a benefit of international trade?

<p>Technology transfer (B)</p> Signup and view all the answers

Moral hazard refers to which behavior after individuals obtain insurance?

<p>Taking on more risks (B)</p> Signup and view all the answers

Which of the following governmental actions can impact income distribution?

<p>Tax and welfare programs (D)</p> Signup and view all the answers

What defines a monopoly?

<p>A single firm in an industry with no close substitutes. (A)</p> Signup and view all the answers

What is a natural monopoly?

<p>A situation where one firm can supply the entire market at lower costs. (A)</p> Signup and view all the answers

Which of the following is NOT a characteristic of perfect competition?

<p>Price makers in the market. (B)</p> Signup and view all the answers

What occurs during the short-run equilibrium for firms in perfect competition?

<p>Firms produce where marginal cost equals marginal revenue. (B)</p> Signup and view all the answers

What characterizes a price maker in a market?

<p>Firms can dictate prices based on their production levels. (C)</p> Signup and view all the answers

What leads to firms earning zero economic profit in the long run?

<p>Increased competition pushing prices down. (B)</p> Signup and view all the answers

What effect does information asymmetry have in a market?

<p>It allows one party to have better information than another. (D)</p> Signup and view all the answers

Which type of monopoly is established by government regulation?

<p>Government Monopoly (A)</p> Signup and view all the answers

Which of the following best defines a public good?

<p>A good that is non-rivalrous and non-excludable. (C)</p> Signup and view all the answers

What is an implication of perfect information in a market?

<p>Consumers can easily switch to the firm offering a lower price. (D)</p> Signup and view all the answers

Which factor is NOT typically associated with affecting wage levels?

<p>Supply of Public Goods (B)</p> Signup and view all the answers

What is a likely consequence of market failure?

<p>Lack of equilibrium in prices. (C)</p> Signup and view all the answers

How do higher skill levels in the workforce generally impact wages?

<p>They commonly result in higher wages. (A)</p> Signup and view all the answers

Which characteristic of public goods allows consumption without reducing availability?

<p>Non-rivalry (B)</p> Signup and view all the answers

What typically happens when there is market control in an economy?

<p>Certain sellers manipulate prices. (B)</p> Signup and view all the answers

What is the balance of trade?

<p>The difference between imports and exports. (A)</p> Signup and view all the answers

What is a characteristic of a perfectly competitive market?

<p>Resources are allocated to their best use. (C)</p> Signup and view all the answers

Which is a feature of an oligopoly?

<p>The number of sellers exceeds two but is less than five. (B)</p> Signup and view all the answers

What is a limitation commonly associated with perfect competition?

<p>Low incentives for innovation due to low profits. (A)</p> Signup and view all the answers

In the context of market structures, what does monopoly refer to?

<p>A single firm that controls the entire market for a product. (C)</p> Signup and view all the answers

What best describes the concept of market failure?

<p>A situation resulting in unequal allocation of resources. (A)</p> Signup and view all the answers

What is the impact of low profits in a perfectly competitive market?

<p>Limited incentives for innovation among firms. (C)</p> Signup and view all the answers

In what type of market structure do firms have some control over prices?

<p>Oligopoly. (B)</p> Signup and view all the answers

What role do labor markets play?

<p>They facilitate the exchange between workers and employers. (B)</p> Signup and view all the answers

Flashcards

Perfect Competition

Many small firms selling identical products with no single firm controlling the market.

Price Maker

The ability of a firm to influence the price of its goods or services in the market.

Price Taker

The ability of a firm to accept the market price, unable to influence it.

Monopoly

A market structure where a single firm controls the entire market with no close substitutes.

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Natural Monopoly

A type of monopoly where a single firm can produce the entire market output at a lower cost than multiple firms.

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Government Monopoly

A type of monopoly established by government regulations.

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Geographic Monopoly

A type of monopoly where a firm has exclusive control over a market in a particular area.

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Monopolistic Competition

A market structure where firms have some control over their prices, but face competition from other firms offering similar products.

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Oligopoly

A market structure where only a few sellers offer similar or identical products. The number of sellers is between two and five.

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Allocative Efficiency

A situation where resources are allocated to their best use, maximizing societal welfare.

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Productive Efficiency

A situation where firms produce at the lowest possible cost, minimizing waste and maximizing output.

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Market Failure

A situation where the market fails to allocate resources efficiently, leading to undesirable outcomes.

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Market

A market where buyers and sellers meet to exchange goods and services.

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Labor Markets

Labor markets facilitate the matching of workers and employers, enabling the exchange of labor for wages or salaries.

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Public Good

A good that can be consumed by one person without preventing another from enjoying it. It is also difficult to exclude anyone from consuming it, even if they haven't paid for it.

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Non-rivalry

One person's consumption of a good does not prevent another person from consuming the same good.

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Non-exclusivity

It is difficult or impossible to exclude anyone from enjoying a good, even if they haven't paid for it.

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International Trade

The exchange of goods and services between countries, with exports representing goods sent out and imports representing goods brought in.

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Information Asymmetry

A situation where one party in a transaction has more or better information than the other party.

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Balance of Trade

The difference between the value of a country's exports and its imports. A surplus indicates more exports than imports, while a deficit indicates more imports than exports.

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Free-rider

A situation where individuals or groups receive the benefits of a good without paying for it.

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Externality

The cost or benefit that impacts a party who did not choose to incur that cost or benefit. It's the loss or gain in one party's welfare due to another party's actions without compensation.

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Adverse Selection

When individuals with higher risks are more likely to purchase insurance. This can make insurance less profitable and potentially lead to higher premiums.

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Moral Hazard

When people take more risks after getting insurance because they feel protected. This can make insurance more expensive and less sustainable.

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Income Distribution

The way total income is divided among individuals or groups. It helps analyze the economic health and fairness of a society.

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Trade Barriers

Policies that restrict international trade, such as tariffs, quotas, and subsidies.

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Specialization

The specialization of countries in producing goods and services where they have a comparative advantage, leading to increased efficiency and global trade.

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Technology Transfer

The transfer of innovative technologies from one country to another, often facilitated by international trade, leading to economic growth and development.

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Study Notes

Perfect Competition

  • Definition: A market structure with many small firms selling identical products, no single firm controls the market.
  • Characteristics: Many buyers and sellers, homogeneous products, free market entry and exit, perfect information.
  • Short-Run Equilibrium: Firms can make profits or losses, produce where marginal cost (MC) equals marginal revenue (MR).
  • Long-Run Equilibrium: Firms earn zero economic profit due to free entry & exit, market supply adjusts so price equals average cost (AC).
  • Advantages: Allocative efficiency (resources used best), productive efficiency (lowest cost production), consumer benefits (low prices).
  • Limitations: Lack of product variety, limited incentives for innovation due to low profits, real-world rarity.

Monopoly

  • Definition: A single firm in an industry with no close substitutes.
  • Types: Natural monopoly (single firm supplies entire market at lower cost), government monopoly (regulated by government), geographic monopoly (exclusive control in an area).
  • Price Maker: Firms influence the price of goods/services.

Types of Market Structures

  • Price Taker: Firms accept the market price as given and cannot influence it (operates in perfectly competitive markets).
  • Price Maker: Firms have the ability to influence the price of their goods/services (operates in monopolistic or imperfectly competitive markets).

Monopolistic Competition

  • Definition: Many firms selling similar but not identical products. Firms have a monopoly over the particular product but compete for customers with similar products.

Oligopoly

  • Definition: A market structure where a few sellers offer similar or identical products. The number of sellers must be more than 2 but less than 5.
  • Simplest Form: Duopoly (two members).

Market

  • Definition: A place where buyers and sellers meet to exchange products or services.
  • Exchange: Goods, services, or money.

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Perfect Competition & Monopoly ECO 101 PDF

Description

Test your knowledge on key economics concepts such as externalities, income inequality, and market structures. This quiz covers various economic terms and their implications, including monopolies and perfect competition. Dive into the complexities of economic interactions and discover how behavior impacts markets.

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