Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
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Question
Chapter 24, Problem 7E
To determine
To explain:
The predictions about the market for illegal drugs in the long run. The impact of government's war against drugs in the short run and in the long run.
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How would you explain allocative efficiency in a purely competitive market structure?
Group of answer choices
Firms produce the quantity where the price consumers pay is less than the cost to society to produce it.
Firms produce that quantity where the price consumers pay equals the cost to society to produce it.
Allocative efficiency is a concept involving only two goods, so it cannot be applied to a perfectly competitive market..
Firms ensure that they produce enough quantity so that everyone who wishes to buy the product can do so.
Which of the following products/markets is most consistent with the perfect competition model?
Apple iPhones
a bustling farmers' market
Kellogg's Frosted Flakes
electric utilities
automobiles
2
Adam Smith’s “invisible hand” refers to
The mechanism that moves market price and quantity to equilibrium
The natural tendency of markets to avoid monopolies and ensure competition
The market’s incentive to lower price in order to increase quantity sold
The lack of government role in the free market due to the market’s ability to self-regulate
The tendency of firm’s to seek to merge in order to realize synergies and market dominance
3
A company facing inelastic demand for a product sees an increase in its costs after a worker strike forces a wage increase. What is likely to happen to the price and quantity sold of that product?
Price will fall slightly while…
Define a perfectly competitive market.
A. Market that makes it possible for firms or businesses to reduce the quality of their products or services in order to cut their own costs
B. Market model where many firms and businesses compete against each other to create an innovative product at the best cost, which ultimately benefits society
C. Market where a firm or business has no competition in manufacturing a good or providing a service
D. Market with few sellers and many buyers
Knowledge Booster
Similar questions
- Looking around your city, what businesses do you think come closest to the model of a perfectly competitive market? Explain why this is the case using correct economic terms and concepts.arrow_forwardExplain how a firm in a competitive market identifies the profit-maximizing level of production. When should the firm raise production, and when should the firm lower production?arrow_forwardExplain in detail how purely competitive markets, in the long-run, know how to adjust to and provide the correct output, at the correct price. Give an example of a good or service you might buy that is closest to being in a purely competitive market. Explain your logic.arrow_forward
- When the number of competing firms is small in a market, is this market necessarily different from a perfectly competitive market in terms of market power and efficiency? Develop your in-depth analysis and argument on the basis of relevant economic theory or models. Also discuss and explain how market power can empirically and practically (from a competition policy point of view) be assessed.arrow_forwardUsing the tools of economic analysis that you learned, analyze the behavior of the enterprise operating in the perfectly competitive market, in both the short and long term, if it achieves an economic loss in the short term.arrow_forwardTrue and false statements (Justify your Statement with reason). i. The term imperfect competition refers to every market structure besides pure competition. ii. The demand curve for a purely competitive industry is perfectly elastic, but the demand curves faced by individual firms in such an industry are down sloping. iii. Fixed costs are costs that change directly with output. iv. Normative statements are expressions of facts.arrow_forward
- Why is the perfect competition often used as a benchmark? Question 3 options: The perfect competition model is more frequently observed in the real world compared to other market models It provides a useful comparison to markets that operate in more complex, real-world conditions. It accounts for a variety of issues like pollution, inventions of new technology, poverty, and government programs that other models do not account for. In the real world, all markets are perfectly competitive, so this model allows us to compare them to one another.arrow_forwardWhich of the following industries most closely approximates the perfectly competitive model? (a) Automobile,(b) cigarette, (c) newspaper, or (d) wheat farming.arrow_forwardWhich of the following is NOT a charactersitic of the model of perfectly competitive market? a) Many sellers produce an identical product. b) Firms can increase their prices by reducing their product. c) Firms have freedome of entry into the market. d) No signs firm can influence the market price.arrow_forward
- How do price controls affect the workings of a perfectly competitive market? Use a supply demand diagram as part of your answer.arrow_forwardSuppose all firms in a perfectly competitive market structure are in long-runequilibrium. Then demand for the firms’ product increases. Initially, price andeconomic profits rise. Soon afterward, the government decides to tax most (but not all) of the economic profits, arguing that the firms in the industry did not earn the profits. Rather, the profits were simply the result of an increase in demand. What effect, if any, will the tax have on market adjustment?arrow_forwardAllocative efficiency is an economic concept regarding efficiency at the social or societal level. It refers to producing the optimal quantity of some output, the quantity where the marginal benefit to society of one more unit just equals the marginal cost. The rule of profit maximization in a world of perfect competition was for each firm to produce the quantity of output where P = MC, where the price (P) is a measure of how much buyers value the good and the marginal cost (MC) is a measure of what marginal units cost society to produce. A monopolist... Group of answer choices Would try to achieve allocative efficiency to compete with the other firms who own a larger market share. Will prefer to operate where price < average total cost. Has no motivation to operate at an output level where P=MC, once a barrier is in place and no longer has to worry about competition. Will experience greater profits if it sets prices equal to average total cost.arrow_forward
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