Chapter 1

Question 1

what is a market?

Answer 1

Collection of buyers and sellers that, through their actual or potential interactions, determines the price of a product or set of products

Question 2

what is arbitrage?

Answer 2

Practice of buying at a low price at one location and selling at a higher price in another

Question 3

what is a perfectly competitive market?

Answer 3

Market with many buyers and sellers, so that no single
buyer or seller has a significant impact on price

Question 4

what is market price?

Answer 4

price prevailing in a competitive market

Question 5

what is meant by the term ‘extent of a market?

Answer 5

Boundaries of a market, both geographical and in terms of range of products produced and sold within it

Question 6

why is market definition important?

Answer 6

-A company must understand who its actual and potential competitors are for the various
products that it sells or might sell in the future
-Market definition can be important for public policy decisions.

Question 7

what is the nominal price?

Answer 7

absolute price of a good, unadjusted for inflation

Question 8

what is the real price?

Answer 8

price of a good relative to an aggregate measure of prices, adjusted for inflation

Question 9

what is the consumer price index?

Answer 9

measure of the aggregate price level

Question 10

what is the producer price index?

Answer 10

measure of the aggregate price level for intermediate products and wholesale goods