Chapter 3 - Competition and Monopoly

Question 1

Perfect Competition Assumptions (5)

Answer 1

1. Large number of buyers and sellers (all small price takers)
2. Homogeneous Products (no product differentiation)
3. Perfect Information (no uncertainty, prices are known)
4. No Transaction Costs (no costs for negotitation and monitoring contracts)
5. Free Entry and Exit (no special costs to enter the market)

Question 2

Price Elasticity of Demand

Answer 2

The price elasticity of demand is a measure of how sensitive quantity demanded is to a change in price.