Economics Test Bank Chapter 14

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Chapter 14 Firms in Competitive Markets

Multiple Choice

1.A FIRM HAS MARKET POWER IF IT CAN
|a. |maximize profits. | |b. |minimize costs. | |c. |influence the market price of the good it sells. | |d. |hire as many workers as it needs at the prevailing wage rate. |

ANS:CPTS:1DIF:1REF:14-0
NAT:AnalyticLOC:Perfect competitionTOP:Market power
MSC:Definitional

2.A book store that has market power can
|a. |influence the market price for the books it sells. | |b. |minimize costs more efficiently than its competitors. | |c. |reduce its advertising budget more so than its competitors. | |d. |ignore profit-maximizing strategies when setting the price for its books. |

ANS:APTS:1DIF:1REF:14-0
NAT:AnalyticLOC:Perfect competitionTOP:Market power
MSC:Applicative

3.The analysis of competitive firms sheds light on the decisions that lie behind the |a. |demand curve. | |b. |supply curve. | |c. |way firms make pricing decisions in the not-for-profit sector of the economy. | |d. |way financial markets set interest rates. |

ANS:BPTS:1DIF:1REF:14-0
NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive

4.For any competitive market, the supply curve is closely related to the |a. |preferences of consumers who purchase products in that market. | |b. |income tax rates of consumers in that market. | |c. |firms’ costs of production in that market. | |d. |interest rates on government bonds. |

ANS:CPTS:1DIF:1REF:14-0
NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive

5.Suppose a firm in each of the two markets listed below were to increase its price by 20 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not? |a. |corn and soybeans | |b. |gasoline and restaurants | |c. |water and cable television | |d. |spiral notebooks and college textbooks |

ANS:DPTS:1DIF:2REF:14-0
NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Applicative

6.Suppose a firm in each of the two markets listed below were to increase its price by 30 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not? |a. |oil and natural gas...
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