Exam Questions The Competitive Market Ch.3

Dewar ASQZ

Chapter 3

Multiple Response

1. Which of the following are characteristics of perfect competition?

[1] Many sellers possessing tiny market shares

[2] A homogenous product

[3] A heterogenous product

[4] Many barriers to entry

[5] No barriers to entry

[6] Perfect consumer information

<Answer: 1, 2, 5, 6>

<Complexity: Difficult>

<A-head: Perfect Competition>

<Subject: Chapter 3, Page 17>

Matching

2. Match the following terms to the appropriate definition.

[1] When a consumer strives for greatest satisfaction or value from the bundle purchased using the least amount of budgeted money.

<Answer: Utility maximization>

[2] A process that firms use to determine the most output given price levels that will yield the most return after production costs and the total cost outlay are taken into account.

<Answer: Profit maximization>

[3] The additional benefit gained from the consumption of the next unit for the individual.

<Answer: Marginal private benefit>

[4] The additional expense of producing the next unit for the firm.

<Answer: Marginal private cost>

<Complexity: Moderate>

<A-head: Supply and Demand>

<Subject: Chapter 3, Page 18>

Matching

3. Match the following terms to the appropriate definition.

[1] Price level where there are no surpluses or shortages of the good or services in the market.

<Answer: Market clearing condition>

[2] Difference between what an individual is willing to pay and what is actually paid for some level of output.

<Answer: Consumer surplus>

[3] Measures the difference between the actual price received by the seller and the required price as measured by the marginal private cost for each additional unit produced.

<Answer: Producer surplus>

[4] Examines how changes in market conditions influence the positions of demand and supply curves and cause the equilibrium price and quantity to change.

<Answer: Comparative statics>

<Complexity: Moderate>

<A-head: Supply and Demand>

<Subject: Chapter 3, Page 19>

Multiple Response

4. Which of the following are important clearing functions served by price?

[1] Provides useful information to both consumers and producers regarding the relative value of a good or service in the market

[2] Serves as a rationing device, distributing goods and services to consumers who value them the most

[3] Acts as an incentive mechanism, encouraging more resources to markets with shortages through price increases and fewer resources to markets with surpluses through price decreases

[4] Allows both consumers and producers to achieve satisfaction from the consumption and production of marketable goods

<Answer: 1, 2, 3>

<Complexity: Difficult>

<A-head: Comparative Statics>

<Subject: Chapter 3, Page 19>

Multiple Choice

5. Which of the following creates an incentive for new firms to enter an industry to obtain a share of the profits, thus driving the price down and inducing more goods and services to be produced?

[1] Excess costs

[2] Excess profits

[3] Excess supply

[4] Excess demand

<Answer: 2>

<Complexity: Moderate>

<A-head: Barriers to Entry>

<Subject: Chapter 3, Page 20>

True/False

6. Free entry and exit of firms can only occur in perfectly competitive markets because barriers to entry and exit are nonexistent.

<Answer: True>

<Complexity: Easy>

<A-head: Barriers to Entry>

<Subject: Chapter 3, Page 20>

True/False

7. When applied to healthcare industries, many of the assumptions of microeconomic analysis and characteristics often fit extremely well.

<Answer: False>

<Complexity: Easy>

<A-head: Perfect Competition>

<Subject: Chapter 3, Page 17>

Multiple Response

8. Which of the following are conditions that exist in the healthcare market that lead to failures of the perfectly competitive model?

[1] Accreditation of healthcare facilities may lead to a barrier and decrease potential competition due to the standards that must be maintained.

[2] Licensure reduces the number of providers in the market because it creates a barrier to entry and decreases potential competition.

[3] Consumers typically lack perfect information about prices and the technical aspects of medical services, which may lead to physicians practicing opportunistically rather than in the best interest of the patients.

[4] Regulations for health and safety can lead to barriers to entry in the marketplace where only certain types of firms may be able to compete in the market due to quality or infrastructure goals in the market.

<Answer: 2, 3, 4>

<Complexity: Difficult>

<A-head: Perfect Competition>

<Subject: Chapter 3, Page 18>

Multiple Response

9. Which of the following change the position of the supply curve by affecting the cost of production in a given period?

[1] Number of buyers

[2] Consumer tastes

[3] Input prices

[4] Technology

[5] Number of producers

<Answer: 3, 4, 5>

<Complexity: Moderate>

<A-head: Comparative Statics>

<Subject: Chapter 3, Page 19>

True/False

10. The sum of the consumer and producer surplus is the total net gains from free-market trade for the consumers and producers.

<Answer: True>

<Complexity: Easy>

<A-head: Supply and Demand>

<Subject: Chapter 3, Page 19>