Chapter 8 MCQ Flashcards
Monopolists have market power and do not have to live by the law of demand. T F
False. Monopolist’s market power is limited by what buyers are willing and able to pay.
A worker who is the only one with a particular skill in her community has a monopoly over that skilled labour in her community. T F
True. The only seller can be in an output or input market.
The only seller of a product or service with no close substitutes is a price maker. T F
True. But even monopoly price-makers must live by the law of demand.
Sellers always prefer selling at higher prices. T F
False. A seller may earn more revenues by cutting prices instead of raising them if demand is elastic.
Businesses prefer to have a monopoly over perfect competition. T F
True. Businesses prefer to be price makers rather than price takers.
Of all market structures, barriers to entry are highest for monopoly. T F
True. Barriers create the monopoly.
If McDonald’ s were to buy Wendy’ s, this would reduce McDonald’s economies of scale. T F
False. This would increase economies of scale.
The higher the market power, the lower the elasticity of demand. T F
True. Higher pricing power comes from more inelastic demand.
In monopolistic competition there are many perfect substitutes. T F
False. There are differentiated substitutes.
Businesses in monopolistic competition have some pricing power. T F
True. Because of product differentiation.
The elasticity of demand is higher for oligopoly than for monopolistic competition. T F
False. Consumers are more sensitive to price changes in monopolistic competition because there are more businesses selling similar substitutes.
The gaming hardware industry is an example of monopolistic competition. T F
False. The gaming industry is an oligopoly. A few companies — Nintendo, Microsoft, and Sony — control the market.
Dreams of monopoly market power and profits generate competitive actions that produce outcomes resembling perfect competition. T F
True. Businesses must at least match the competitive actions of rivals.
Competition is about figuring out ways to match your rival suppliers in the market. T F
False. Businesses look for new ways to beat rivals, not just match them.
Every choice you make, every action you take happens in the context of a market. T F
True.
A monopolist
is the only seller of a product or service.
is a price maker.
has no close substitutes.
is all of the above.
d) Definitions.
The trade-off to setting a higher price is
higher sales.
lower sales.
higher revenues.
nothing — there is no trade-off.
b) Even price-makers must live by the law of demand.
he effect on the nearby farming industry of the “buy and eat local” movement will
make it more competitive.
increase the number of substitutes available.
reduce the number of substitutes available.
all of the above.
c) Narrow the definition of the market.
Monopolies can exist even though economic profits are supposed to attract entry from new businesses, if there are
economies of scale.
legal barriers that prevent new businesses from entering.
economic barriers that prevent new businesses from entering.
all of the above.
.
d) All are barriers to entry.
Patents and copyrights increase market power by
increasing the number of buyers.
increasing the number of sellers.
preventing other businesses from competing.
making it easier for other businesses to compete.
c) Barriers to entry.
Which of the following could receive a patent?
a song
a poem
an iPhone
all of the above
c) Songs and poems get copyrights, products get patents
Which of the following is not a market structure?
monopoly
oligopoly
competitopoly
perfect competition
c) A made-up, not real, word.
Which market structure has the lowest barriers to entry?
monopoly
oligopoly
monopolistic competition
perfect competition
d) No barriers to entry.
Which market structure has the highest elasticity of demand?
monopoly
oligopoly
monopolistic competition
perfect competition
d) More elastic demand = lower pricing power.
Which market structure has the most number of sellers?
monopoly
oligopoly
monopolistic competition
perfect competition
d) Great many sellers producing identical products.
Which market structure does not have pricing power?
monopoly
oligopoly
monopolistic competition
perfect competition
d) All businesses are price takers. Zero pricing power.
Which market structure does not have close substitutes?
monopoly
oligopoly
monopolistic competition
perfect competition
a) Definition.
How do businesses compete?
lower prices
better product quality
better service quality
all of the above
d) Active attempts of creative destruction.
Advertising
makes demand more elastic.
makes demand more inelastic.
reduces demand for a product or service.
does all of the above.
b) Creates product differentiation, reducing consumer willingness to substitute other products or services.
Robotic assembly lines reduce the jobs available for assembly-line workers. This phenomenon is called
karma.
destructive creationism.
creative destruction.
the handmaid’s tale.
c) Improve living standards for all, but destroy less productive production methods.
