30 Questions
Which market structure is characterized by a single seller with considerable power over pricing and output decisions?
Monopoly
What is the main factor that determines market structure?
The number and relative size of firms supplying the product
Which market structure offers the greatest potential control over price?
Monopoly
What type of market structure is characterized by a relatively small number of firms supplying the market?
Oligopoly
In which market structure do sellers and buyers have a strictly homogeneous product and no single producer is large enough to influence market prices?
Perfect competition
What is the main difference between perfect competition and monopolistic competition?
The degree of product differentiation
Which market structure is regulated by a governmental authority in most market-based economies?
Monopoly
Which market structure is characterized by a large number of firms, each producing a homogeneous product and having no market power?
Perfect competition
In which market structure are long-run profits driven down by the forces of competition?
Perfect competition
Which market structure allows for the possibility of large profits even in the long run?
Monopoly
What determines a firm's profitability in the long run?
Market structure
According to the text, what are the four types of market structure?
Perfect competition, monopolistic competition, oligopoly, monopoly
Which market structure is characterized by a few large firms dominating the market and having significant market power?
Oligopoly
According to the text, what is a market?
A group of buyers and sellers that are aware of each other
Which of the following is a characteristic of perfect competition?
There are few barriers to entry and exit
Which of the following is an example of a perfectly competitive market?
The agriculture industry
What is income elasticity of demand?
The responsiveness of demand to changes in consumer income
For normal goods, how does income elasticity of demand typically behave?
It is a positive value
What does a negative income elasticity of demand indicate?
The product is an inferior good
How does a change in income affect the demand curve for a normal good?
It shifts the demand curve to the right
What factor can influence the demand for a product by changing the price of a related product?
The change in price of a strong substitute or a complementary product
According to the text, what is the formula for cross-price elasticity of demand?
εX = (% change in QDA) ÷ (% change in PB)
When is the cross-price elasticity of demand considered positive?
When the two products are substitutes
Give an example of two products that are considered substitutes based on their cross-price elasticity of demand.
Honey and sugar
When is the cross-price elasticity of demand considered negative?
When the two products are complements
Give an example of two products that are considered complements based on their cross-price elasticity of demand.
DVDs and DVD players
What does a negative value of cross-price elasticity of demand indicate?
The two products are complements
What does a positive value of cross-price elasticity of demand indicate?
The two products are substitutes
What is the relationship between total revenue and price elasticity of demand when εP > 1?
Demand is elastic↑P → TR↓and↓P → TR↑
What is the relationship between total revenue and price elasticity of demand when 0 < εP < 1?
Demand is inelastic↑P → TR↑and↓P → TR↓
Study Notes
Market Structure
- A single seller with considerable power over pricing and output decisions characterizes a monopoly market structure.
- The main factor that determines market structure is the number of firms in the market.
- A monopoly market structure offers the greatest potential control over price.
- An oligopoly market structure is characterized by a relatively small number of firms supplying the market.
- In a perfectly competitive market structure, sellers and buyers have a strictly homogeneous product, and no single producer is large enough to influence market prices.
- The main difference between perfect competition and monopolistic competition is the presence of product differentiation in monopolistic competition.
Market Characteristics
- A monopolistic competition market structure is characterized by a large number of firms, each producing a differentiated product.
- In a perfectly competitive market structure, long-run profits are driven down by the forces of competition.
- A monopoly market structure allows for the possibility of large profits even in the long run.
- A firm's profitability in the long run is determined by its cost structure and the market structure.
Types of Market Structure
- The four types of market structure are perfect competition, monopolistic competition, oligopoly, and monopoly.
Market Definition
- A market is a place where buyers and sellers interact to exchange goods and services.
Perfect Competition
- A characteristic of perfect competition is the presence of a large number of firms, each producing a homogeneous product.
- An example of a perfectly competitive market is the agricultural market.
Income Elasticity of Demand
- Income elasticity of demand measures the responsiveness of demand to changes in income.
- For normal goods, income elasticity of demand typically behaves positively, meaning that an increase in income leads to an increase in demand.
- A negative income elasticity of demand indicates that a good is inferior, meaning that an increase in income leads to a decrease in demand.
- An increase in income shifts the demand curve for a normal good to the right.
Cross-Price Elasticity of Demand
- Cross-price elasticity of demand measures the responsiveness of demand to changes in the price of a related product.
- The formula for cross-price elasticity of demand is (ΔQx / Qx) / (ΔPy / Py).
- Cross-price elasticity of demand is considered positive when an increase in the price of one good leads to an increase in demand for another good.
- Examples of substitutes based on their cross-price elasticity of demand are coffee and tea.
- Cross-price elasticity of demand is considered negative when an increase in the price of one good leads to a decrease in demand for another good.
- Examples of complements based on their cross-price elasticity of demand are cars and gasoline.
- A negative value of cross-price elasticity of demand indicates that two goods are complements.
- A positive value of cross-price elasticity of demand indicates that two goods are substitutes.
Price Elasticity of Demand
- When εP > 1, an increase in price leads to an increase in total revenue.
- When 0 < εP < 1, an increase in price leads to a decrease in total revenue.
Test your knowledge on market structures and how they impact the cost of medical innovations. Explore the benefits of oligopoly markets and the conditions of perfect competition.
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