Economics Chapter 4
Why is a price war harmful to producers?
If prices go too low, then the producers won't be able to make a profit.
How can collusion be harmful to consumers?
It can make consumers pay too much money for goods or services
Why is predatory pricing an unprofitable strategy for a company to use over the long term?
It causes the company to lose money.
A firm might try to increase its market power in order to
Charge higher prices for the goods it produces.
Which of the following effects of an industry's deregulation would show that it had failed to achieve its objective?
Market prices have risen significantly.
What would most likely happen in a purely competitive market if one supplier was significantly more efficient than all others?
Suppliers who could not become more efficient would be driven from the market.
Why do high start-up costs serve as a barrier to market entry?
by limiting potential suppliers to those few with large amounts of capital
Which set of markets includes all purely competitive markets?
children's wood blocks, dry pasta, plain t-shirts
If the three largest producers of breakfast cereal agreed to form an organization that produced a limited amount of cereal for the next year in order to inflate the price, what would they be doing?
creating a cartel
Which type of business would have the lowest technological barrier to entry?
dog walking
A monopolistically competitive firm has some control over price because
it can differentiate its goods from other products.
The government would likely block a merger if the merger would
lead to unfair market control.
Which of the following is a characteristic of monopolistic competition?
low barriers to entry
Why is a purely competitive market undesirable for owners of supplier firms in that market?
low profits
If you saw an advertisement for an electric car that boasted 500 miles between battery charges, what form of non-price competition would that be?
physical characteristics
A hotel that offers a complimentary fruit basket and a concierge who will help you plan your activities is an example of what kind of non-price competition?
service level
Which of the following is most similar to a purely competitive labor market?
three teenagers who each earn money by raking leaves for different people in the neighborhood
Why does the government regulate oligopolies?
to keep them from acting like monopolies
Why does government intervene in markets?
to promote competition and keep prices low for consumers
Which of these is not a characteristic of pure competition?
unique products
What is the MOST LIKELY reason that some firms have gone out of business after their industry was deregulated?
They could not compete successfully with new firms entering the market.
Why are individual suppliers unable to set their own prices in a purely competitive market?
They do not have enough influence over the market.
Why can't a monopolistically competitive firm raise prices as high as a true monopoly can?
because competition would ensure that customers buy a rival firm's cheaper product
