Question

unit 2 exam: understanding markets
name:

1. if a firm sells its output in a market characterized by many sellers and buyers, a homogeneous product, no price and perfect knowledge, then the firm is a

a. a monopolist.
b. an oligopolist.
c. a perfect competitor.
d. a monopolistic competitor.

1. which of the following will not change the demand for a product?

a. a change in the price of a substitute
b. a change in income
c. a change in expectations about the future price of the product
d. a change in the price of the product

1. when the price is higher than the equilibrium price,

a. a shortage will exist.
b. buyers desire to purchase more than is produced.
c. sellers desire to produce and sell more than buyers wish to purchase.
d. quantity demanded equals quantity supplied.

1. which one of the following is a means of coping with a monopoly or negative externality?

a. vouchers
b. interventions
c. patents
d. copyrights

1. the downward - sloping demand curve reflects which of the following?

a. the price is positively related to quantity supplied.
b. there is an inverse relationship between price and quantity demanded.
c. there is a direct relationship between price and quantity demanded.
d. when the price falls, buyers willingly buy less.
graph 6 - 4

1. according to graph 6 - 4, when the supply curve for gasoline shifts from s1 to s2

a. the price will increase to p3.
b. a surplus will occur at the new market price of p2.
c. the market price will stay at p1 due to the price ceiling.
d. a shortage will occur at the price ceiling of p2.

Explanation:

• Question 20: A market with many sellers and buyers, homogeneous product and perfect knowledge is a perfect - competition market, so the firm is a perfect competitor.
• Question 21: A change in the price of the product leads to a movement along the demand curve, not a change in demand. Other factors like price of substitutes, income and future - price expectations shift the demand curve.
• Question 22: When price is above equilibrium, quantity supplied is greater than quantity demanded as sellers want to sell more at higher prices and buyers want to buy less, so sellers desire to produce and sell more than buyers wish to purchase.
• Question 23: Government interventions such as antitrust laws and regulations can be used to deal with monopolies and correct negative externalities. Vouchers are mainly for consumer - choice in some markets, patents and copyrights are for protecting intellectual property.
• Question 24: The downward - sloping demand curve implies an inverse relationship between price and quantity demanded, i.e., as price increases, quantity demanded decreases and vice - versa.
• Question 25: With a price ceiling at P2, when the supply curve shifts from S1 to S2, the market price is still at P2 (due to the price ceiling) and quantity demanded is greater than quantity supplied, resulting in a shortage.

Answer:

1. c. a perfect competitor
2. d. a change in the price of the product
3. c. sellers desire to produce and sell more than buyers wish to purchase
4. b. Interventions
5. b. There is an inverse relationship between price and quantity demanded
6. d. a shortage will occur at the price ceiling of P2