Microeconomics Chapter 7: Perfect Competition
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Questions and Answers

What is the main advantage of multiple buyers in a perfect competition market?

  • It provides customers with reasonable prices of products (correct)
  • It increases the demand for products
  • It enables sellers to differentiate their products
  • It allows sellers to set higher prices

    • What is a characteristic of standardized products in a perfect competition market?

  • They are only available in limited quantities
  • They are exactly the same as competitors (correct)
  • They are priced differently depending on the seller
  • They are unique and differentiate one seller from another

    • What is an example of a basic commodity that is a standardized product in a perfect competition market?

  • Notebook paper (correct)
  • Luxury cars
  • Branded clothing
  • Electronics

    • What is a characteristic of freedom to enter and exit markets in a perfect competition market?

    <p>Producers can enter the market when business is profitable</p> Signup and view all the answers

    What is a characteristic of independent buyers and sellers in a perfect competition market?

    <p>Buyers and sellers do not join together to determine the price</p> Signup and view all the answers

    What is an example of a product that is subject to imperfect competition due to government subsidies?

    <p>Corn</p> Signup and view all the answers

    What is a characteristic of imperfect competition?

    <p>Few sellers and products that are not alike</p> Signup and view all the answers

    What is the main difference between perfect competition and imperfect competition?

    <p>The number of sellers and the level of product differentiation</p> Signup and view all the answers

    What primarily differentiates brand name products from standardized products?

    <p>Brand name, logo, and packaging</p> Signup and view all the answers

    In what type of market structure can only one seller control the majority of the product market?

    <p>Monopoly</p> Signup and view all the answers

    What is a natural monopoly?

    <p>A market that operates efficiently with only one producer</p> Signup and view all the answers

    Which example best illustrates a geographic monopoly?

    <p>Professional sports team in a specific region</p> Signup and view all the answers

    When do monopolies achieve profit maximization?

    <p>When marginal revenue equals marginal cost</p> Signup and view all the answers

    Which of the following is not a characteristic of a government monopoly?

    <p>Lowest cost of production with one producer</p> Signup and view all the answers

    What best describes a 'price maker'?

    <p>A firm that has enough market power to influence prices</p> Signup and view all the answers

    What is the purpose of a cartel?

    <p>To maintain prices at a high level and restrict competition</p> Signup and view all the answers

    Study Notes

    Perfect Competition

    • 5 key characteristics of perfect competition:
      • Many buyers and sellers
      • Standardised products (e.g., agricultural products, basic commodities)
      • Freedom to enter and exit markets
      • Independent buyers and sellers
      • Well-informed buyers and sellers

    Characteristics of Perfect Competition

    • Multiple buyers help maintain reasonable prices
    • Standardised products enable customers to focus on price over product features
    • Freedom to enter and exit markets allows businesses to respond to profitability
    • Independent buyers and sellers ensure market competitiveness
    • Well-informed buyers and sellers enable efficient price determination

    Real-World Examples of Perfect Competition

    • Corn market: thousands of growers, standardised products, but government subsidies can interfere
    • Beef market: many producers, standardised products, but natural resource scarcity can impact prices

    Perfect and Imperfect Competition

    • Perfect competition: an economic model with many sellers, identical products, and equal access to information
    • Imperfect competition: occurs in markets with few sellers or differentiated products, leading to price control and limited substitutes

    Standardised vs Brand Name Products

    • Standardised products: identical products, lack of differentiation (e.g., milk, eggs, wheat)
    • Brand Name products: differentiated by brand name, logo, packaging, etc., and can be identified by brand name

    Price Takers and Independent Buyers and Sellers

    • Price takers: buyers and sellers accept the market price set by supply and demand
    • Independent buyers and sellers: individual companies without mergers or joint price determination

    Impact of Monopoly

    Characteristics of Monopoly

    • Only one seller in the market
    • Restricted, regulated market due to government regulations
    • Control of prices due to lack of close substitutes

    Types of Monopoly

    • Natural monopoly: cost of production is lowest with only one producer (e.g., water company)
    • Government monopoly: government-owned or permitted single producer (e.g., postal service)
    • Technological monopoly: one firm owns the invention, technology, or method (e.g., Polaroid)
    • Geographic monopoly: no other sellers within a region (e.g., professional sports)

    Monopoly Concepts

    • Economies of scale: savings in costs gained by increased production
    • Patents: legal registration of invention, giving inventor sole rights
    • Costs: price of production
    • Efficiency and government monopolies: evaluating the efficiency of government-controlled industries

    Profit Maximization by Monopolies

    • When marginal revenue equals marginal cost

    Monopoly Concepts (continued)

    • Price makers: sellers with market and pricing power to influence prices
    • Cartel: an association of manufacturers or suppliers to maintain prices and restrict competition
    • Barriers to entry: obstacles to new businesses entering the market due to existing dominance

    Trade Barriers

    • Definition: barriers set by a nation to limit free trade among nations
    • Examples of Trade Barriers:
      • Import quota: limits the amount of products that can be imported
      • Tariff: fees charged for goods imported from another country

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    Learn about the characteristics of perfect competition, including multiple buyers and sellers, standardized products, and more.

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