Economics Questions & Answers: Market Structures & Efficiency

Posted on Sep 13, 2024 in Economy

Monopolistic Competition

Question 1

True or False: In monopolistic competition, firms earn a normal profit and have excess capacity in the long run.

Question 2

True or False: Advertising costs are fixed costs, and cost per unit decreases as production increases.

Question 3

In the model of the kinked demand curve, why is demand less elastic well below the market price?

Question 4

In a dominant duopoly, how does the dominant firm act, and how do smaller companies in the market behave?

Question 5

Who are the creators of game theory?

Question 6

What is the term for an agreement where farmers agree to produce less to raise prices and reap greater benefits?

Question 7

What is a cartel?

Question 8

In a repeated game, what role do penalties play in encouraging cooperation?

Question 9

What type of profit does a firm in a contestable market earn?

Question 10

How does the limitation of price affect potential entrants to a market?

Question 11

Define monopolistic competition.

Question 12

Provide examples of product differentiation.

Question 13

How can a monopolistically competitive firm increase its economic benefit?

Question 14

Compare the selling costs of a monopolistically competitive firm to those of a competitive or monopoly firm.

Question 15

What is the term for a market structure in which a small number of companies compete?

Oligopoly and Game Theory

Question 16

In game theory, what do strategies encompass?

Question 17

What is a payoff matrix?

Question 18

Describe the concept of a dominant strategy in game theory.

Question 19

What is the typical outcome of the prisoner’s dilemma game?

Question 20

Define a duopoly.

Monopoly

Question 21

How does a copyright create a monopoly?

Question 22

How does a patent create a monopoly?

Question 23

Which of the following is more likely to be a monopoly: a local power distributor or a local grocery store?

Question 24

What is a natural monopoly?

Question 25

Why might firms practice price discrimination?

Question 26

At what output level will a single-price monopolist produce?

Question 27

What is the maximum amount of rent that can be earned by a monopoly?

Question 28

Why does a single-price monopoly cause a deadweight loss?

Question 29

What happens to consumer surplus when a monopoly perfectly price discriminates?

Question 30

Does a perfectly discriminating monopoly produce a higher or lower output than a perfectly competitive industry?

Question 31

When does a monopoly occur?

Question 32

What are barriers to entry?

Question 33

What type of monopoly is created by the granting of a patent or copyright?

Question 34

What creates a natural monopoly?

Question 35

What is price discrimination?

Question 36

What is a single-price monopoly?

Question 37

Define producer surplus.

Question 38

What does deadweight loss measure?

Question 39

What is rent-seeking?

Question 40

Define consumer surplus.

Perfect Competition

Question 41

What is the minimum efficient scale?

Question 42

How does a firm maximize profit or economic benefit under perfect competition?

Question 43

If a firm produces 100 units at a marginal cost of $11 and the market price is $10, how can it maximize its profit?

Question 44

Describe the short-run supply curve of a perfectly competitive industry.

Question 45

What happens when firms in a competitive industry earn positive economic profits?

Question 46

What happens in the long run when firms in a perfectly competitive industry initially earn a profit?

Question 47

In a competitive market with no externalities, what do the market demand and supply curves measure?

Question 48

When are trading profits maximized in a competitive market?

Question 49

What is the efficiency outcome in a competitive market where firms pollute the environment?

Question 50

What is the sum of consumer surplus and producer surplus equal to?

Question 51

Are there restrictions to entry in perfect competition?

Question 52

Are firms price takers or price makers under perfect competition?

Question 53

Is normal profit included in a firm’s total cost?

Question 54

What is the difference between a firm’s total revenue and total cost equal to?

Question 55

Can firms incur economic losses in the short run under perfect competition? What about in the long run?

Question 56

What does marginal revenue equal in perfect competition?

Question 57

When a competitive firm maximizes profit, what is the relationship between total revenue and total variable cost?

Question 58

What does the short-run supply curve of a competitive industry show?

Question 59

How do external economies and diseconomies affect average costs in a competitive industry?

Question 60

What does the short-run industry supply curve illustrate when firms have made all possible adjustments?

Efficiency and Welfare

Question 61

In a market graph, what do curves A and B typically represent if A is upward sloping and B is downward sloping?

Question 62

If the marginal benefit of a good is $1.50 at 2,000 units and $1.00 at 7,500 units, while the marginal cost is $1.00 at 2,000 units and $1.50 at 7,500 units, what can you conclude about the efficient quantity?

Question 63

If the marginal benefit of a loaf of bread exceeds its marginal cost, what does this imply about resource allocation?

Question 64

If 500 CDs are produced monthly, but the value people place on them exceeds the opportunity cost of production, is resource use efficient?

Question 65

According to the utilitarian viewpoint, if Adam earns $25,000 and Robert earns $45,000, and they have the same marginal benefit curve, what happens to total utility if a dollar is transferred from Robert to Adam?

Question 66

How do you calculate consumer surplus from a market graph?

Question 67

How does a change in demand affect consumer surplus, assuming the supply curve remains the same?

Question 68

How do you calculate producer surplus from a market graph?

Question 69

If the marginal cost of producing a service increases, what happens to the efficient quantity?

Question 70

If a competitive market for ballooning has a marginal cost equal to marginal benefit at 3,000 balloon rides per day and a price of $130 per ride, what can you conclude about the deadweight loss?

Question 71

If the marginal benefit of your last can of soda is $1.00, what is the value of that can to you?

Question 72

True or False: If the marginal benefit exceeds marginal cost, production is inefficient.

Question 73

What happens to consumer surplus if the market price of a chair decreases, but demand remains the same?

Question 74

What happens to producer surplus in the CD market if the supply of CDs decreases?

Question 75

True or False: In a competitive market, the marginal benefit is the same as the opportunity cost.

Question 76

What is maximized when resources are used efficiently?

Question 77

Which of the following is more likely to be a monopoly: a water provider or a restaurant?

Question 78

Provide an example of an external cost.

Question 79

What is the core moral principle of utilitarianism?

Question 80

Compare the deadweight loss from underproduction of a good to the deadweight loss from overproduction.

Introduction to Efficiency and the Gains from Trade

Question 81

When is resource use considered efficient in terms of production possibilities?

Question 82

Define marginal benefit.

Question 83

Define marginal cost.

Question 84

What is the value of a good equal to?

Question 85

Define consumer surplus.

Question 86

Define producer surplus.

Question 87

What is the goal of utilitarianism?

Question 88

Define external cost.

Question 89

Define external benefit.

Question 90

What occurs at inefficient levels of production?

Elasticity

Question 91

How do you calculate the price elasticity of demand?

Question 92

When is demand for a good considered elastic?

Question 93

True or False: When demand for a good is perfectly inelastic, the price elasticity of demand is greater than 1.

Question 94

What is the range of the price elasticity of demand when demand is inelastic?

Question 95

What is the price elasticity of demand and the shape of the demand curve when demand is perfectly elastic?

Question 96

What happens to price and total revenue when the supply of a good falls?

Question 97

What happens to total revenue when the price of an elastic good increases?

Question 98

What is the sign of the cross elasticity of demand for complementary goods?

Question 99

What is the sign of the income elasticity of demand for normal goods?

Question 100

What is the difference between a luxury and a necessity in terms of income elasticity of demand?

Question 101

If the price of a bus trip decreases, but the total revenue of the bus company remains unchanged, what is the elasticity of demand for bus travel?

Question 102

If Martin continues to buy the same quantity of chocolate truffles regardless of price increases, what is the elasticity of his demand?

Question 103

If a 10% increase in the price of a newspaper causes an 8% decrease in the quantity demanded, is the demand for newspapers elastic or inelastic?

Question 104

What happens to total revenue when the price of an elastic good decreases?

Question 105

If Webster and Oxford dictionaries are close substitutes, what can you say about the price elasticity of demand for Webster dictionaries?

Question 106

If blue feathers and black feathers are close substitutes, what is the sign of the cross elasticity of demand for black feathers with respect to the price of blue feathers?

Question 107

If the cross elasticity of demand for goods X and Y is positive, and the cross elasticity of demand for goods X and Z is negative, what is the relationship between these goods?

Question 108

Which type of good is likely to have the highest income elasticity of demand: necessities, luxuries, or inferior goods?

Question 109

If Mary’s income increases by 20%, and her demand for hockey tickets increases by 10%, are hockey tickets a normal good for Mary? Is her demand elastic or inelastic?

Question 110

Compare the elasticity of supply for lettuce in the short run versus the long run.

Question 111

How do you calculate the price elasticity of demand using percentage changes?

Question 112

When is demand for a good considered elastic in terms of percentage changes?

Question 113

True or False: When demand for a good is perfectly inelastic, the price elasticity of demand is greater than 1.

Question 114

What is the range of the price elasticity of demand when demand is inelastic?

Question 115

What is the price elasticity of demand and the shape of the demand curve when demand is perfectly elastic?

Question 116

What happens to price and total revenue when the supply of a good falls?

Question 117

What happens to total revenue when the price of an elastic good increases?

Question 118

Because toothpaste and toothbrushes are complements, what is the sign of their cross elasticity of demand?

Question 119

Taxi fares and haircuts are normal goods. What is the sign of their income elasticity of demand?

Question 120

What is the difference between a luxury and a necessity in terms of income elasticity of demand?