Econ Ch 12
A buyer or seller that is unable to affect the market price is called
A price taker
Does this "fierce competition" mean that the demand curves for Nescafé coffee and KitKat chocolate bars are horizontal?
No. "Fierce competition" does not imply a horizontal demand curve because horizontal demand curves are found only in perfectly competitive markets.
Refer to the graph of the demand curve facing a firm in the perfectly competitive market for wheat. The fact that the demand curve is horizontal implies which of the following?
The firm can sell any amount of output as long as it accepts the market price of $7.00.
Given this information, what price do you think Tobias argued the company should charge? (Tobias says the class greeted his answer with "thunderous applause.")
The market price.
Why do single firms in perfectly competitive markets face horizontal demand curves?
With many firms selling an identical product, single firms have no effect on market price.
What is a price taker? A price taker is
a firm that is unable to affect the market price.
Is the following statement correct or incorrect? "According to the model of perfectly competitive marketsLOADING..., the demand for wheat should be a horizontal line. But this can't be true: When the price of wheat rises, the quantity of wheat demanded falls, and when the price of wheat falls, the quantity of wheat demanded rises. Therefore, the demand for wheat is not a horizontal line."
incorrect
Despite the fact that few firms sell identical products in markets where there are no barriers to entry, economists believe that the model of perfect competition is important because
it is a benchmark—a market with the maximum possible competition—that economists use to evaluate actual markets that are not perfectly competitive.
When are firms likely to be price takers? A firm is likely to be a price taker when
it sells a product that is exactly the same as every other firm.
What are the three conditions for a market to be perfectly competitive? For a market to be perfectly competitive, there must be
many buyers and sellers, with all firms selling identical products, and no barriers to new firms entering the market.
If the market for beer were perfectly competitive, the location of breweries would
not matter to consumers since the product would be homogeneous.
