Microeconomics

Question 1

Determinants of Demand

Answer 1

1. Consumer incomes
2. Consumer taste and preference
3. Prices of related goods
4. Consumer expectations
5. Number of consumers

Question 2

Determinants of Supply

Answer 2

1. Cost of inputs
2. A change in efficiency of the production process
3. Expectations about price changes
4. Taxes and subsidies

Question 3

Pure Competition

Defining Characteristics:

Answer 3

1. A very large number of buyers and sellers act independently.
2. The product is homogeneous or standardized
3. Each firm produces an immaterial amount of the industry’s total output and thus cannot influence the market price.
4. No barriers to entry or exit from the market exist.
5. Every firm has perfect information.

Question 4

Monopoly

Defining Characteristics:

Answer 4

1. The industry consists of one firm.
2. The product has no close substitutes.
3. The firm can strongly influence price because it is the sole supplier of the product.
4. Entry by other firms is completely blocked in a monopoly.

Question 5

Price Maker

Answer 5

Sets prices as high as it likes because it i not limited by competition.

Question 6

Price Searcher

Answer 6

Does not set prices arbitrarily high but seeks the price that maximizes its profits.

Question 7

Monopolistic Competition

Defining Characteristics:

Answer 7

1. The industry has a large number of firms.
2. Products are differentiated.
3. Few barriers to entry and exit exist.