Complete the mcq:
Question 1
Economists consider the model of perfect competition useful because:
it is a standard for analyzing producer and consumer benefits.
its assumptions exactly fit into actual conditions in some markets.
its assumptions can be easily replaced with realistic ones.
it is a standard for analyzing consumer choices.
Question 2
Suppose the cost of raw materials used by the cotton industry rises to a larger extent compared to the increase in demand in the market. Which of the following situations will arise?
The incidence of the higher cost will fall completely on the consumers.
The incidence of the higher cost will fall completely on the high cost firms.
The incidence of the higher cost will fall completely on the low cost firms.
The incidence of the higher cost will fall partially on the consumers and partially on the sellers.
Question 3
Refer to Table . Suppose initially 3,200 units are demanded at a price of $3 per unit. What will be the quantity of output supplied by each type of firm in the market? The following table gives the average cost of production for three different categories of firms producing the same product.
Table
Type of firms
No. of firms
Average Cost per unit
Equilibrium output
A
350
$3
10 units
B
400
$6
10 units
C
550
$10
10 units
Type A and Type B will jointly supply 3,000 units while Type C will supply 200 units.
Type A firms will supply 3,000 units, while the remaining 200 units will be supplied by Type B.
Type A firms will supply the entire 3,200 units, while Type B and Type C firms will not enter the market.
Type A and Type B will each supply 1,600 units, Type C will not enter the market.
Question 4
If the long-run market supply curve is perfectly elastic, a decrease in variable cost will:
shift the supply curve upward to a higher market-clearing price level.
shift the supply curve downward to a lower market-clearing price level.
shift the supply curve to the right to a higher market-clearing output.
shift the supply curve to the left to a lower market-clearing output.
Question 5
Which of the following commodities have a high short-run own-price elasticity of supply?
Livestock
Petroleum
Food crops
Diamonds
Question 6
Assume that recent oil exploration coupled with a fall in demand reduced petroleum imports of a nation to zero. We can expect:
the domestic price of petroleum to fall below the world price.
the world price of petroleum to fall to equal the domestic price.
petroleum exported by the domestic producers to increase.
petroleum exported by the domestic producers to decrease.
Question 7
Which of the following conditions define a perfectly competitive market?
The transaction costs are very high.
Information is available to participants at a high cost.
The product is homogenous.
There are limited number of buyers and sellers.
Question 8
The short-run supply curve of a perfectly competitive industry with firms having identical costs is:
a horizontal line at the market price.
a vertical line at the equilibrium output.
an upward rising curve.
a downward sloping step function.
Question 9
Assume that the world price of Good A is $8 per unit while its domestic price is $6, and the marginal cost incurred by domestic producers for producing one unit of Good A is $5. If the government imposes a tax of $3 per unit on domestic producers, which of the following situations will be observed?
The tax will increase the price of Good A in the domestic market.
The tax will increase the world price of Good A.
The tax will decrease the profit earned by domestic producers.
The tax will decrease the price of Good A in the domestic market.
Question 10
Assume that the government of a nation prohibits producers from extracting crude oil from some domestic oil fields. Which of the following will be witnessed in the market for crude oil?
The domestic and world price of crude oil would remain unaffected.
The domestic price of crude oil would increase.
Oil import from the world market would decline.
The world price of crude oil would increase.
Question 11
Assume that the world price of Commodity X is $9 per unit while its domestic price is $8, and the marginal cost of production is $6 per unit. If the government imposes a price ceiling of $7 on domestic output:
the import of Commodity X from the world market would stop.
the world price of Commodity X would decline.
a surplus of Commodity X would accumulate in the domestic market.
a shortage of Commodity X would be observed in the domestic market.
Question 12
Which of the following situations resulted from the North American Free Trade Agreement (NAFTA)?
The cost of tortillas in Mexico decreased.
Corn export to the U.S. from Mexico declined.
Corn export to the U.S. from Mexico increased.
The cost of tortillas in the U.S. increased.
Question 13
A set of producers is competitive if:
the good produced by one can be differentiated from the other.
each supplies a complement of what the others produce.
each supplies a substitute for what the others produce.
the good produced by one can be used as an input by other producers.
Question 14
In a perfectly competitive market, the demand curve faced by each firm is:
highly inelastic.
perfectly elastic.
perfectly inelastic.
less elastic.
Question 15
The practice of charging different prices on the basis of varying customer preferences is known as:
arbitrage.
discounting.
price discrimination.
rationing.
Question 16
In the small country of Talisman, the liquor industry is monopolized by a single producer Best Drinks Inc. Best Drinks charges high end customers like 5-star hotels a much higher price than it charges local pubs. Identify the correct statement from the following.
Best Drinks is aware of the variations in the valuation of its products by different consumer segments.
Best Drinks minimizes cost by charging different consumers different prices.
Charging different prices for different consumers increases consumer surplus.
Best Drinks charges different prices because its sole objective is sales maximization.
Question 17
You and your friend go out shopping for television sets for your respective apartments. You find the one you want to buy and pay extra money to have it delivered during the weekend. Your friend is unwilling to pay extra and will wait for the television to be delivered as per the store's usual practice. Which of the following conclusions can be drawn from this information?
You have a higher price elasticity of demand for the TV than your friend.
Your opportunity cost of time is higher and than your friend's.
Your friend's opportunity cost of time is higher than your's.
Both of you have the same price elasticity of demand for the TV.
Question 18
Which of the following statements is true regarding the difference between a monopolist and a perfectly competitive firm?
Competitive price is higher than the price charged by a monopolist.
Supply of output is higher in case of a monopoly than if the market is competitive.
A monopoly can choose its price while a competitive firm is a price taker.
A market characterized by competition has a higher deadweight loss.
Question 19
The demand curve faced by a perfectly competitive firm is:
downward sloping.
the same as the market demand curve.
horizontal.
perfectly inelastic.
Question 20
The peak of the total revenue curve is achieved at the point where:
marginal revenue is the highest.
price is the highest.
marginal revenue is zero.
marginal cost is zero.
Question 21
Tying products can be a profitable strategy for facilitating price discrimination only when:
the demands for the goods are unrelated.
the supply of one of the tied products is low.
the demands for the goods are related.
the market for one of the goods is competitive.
Question 22
Which of the following is a possible explanation for the fall in prices after an industry is monopolized by combining a group of competitors?
A monopolist faces a downward sloping demand curve. Hence, output expansion leads to lower prices.
A reduction in price increases producer surplus. Hence a monopolist may reduce the price of his product.
A monopolist may reduce prices to make it difficult for other firms to compete.
A monopolist can increase profits by reducing price when its cost of production declines due to increased size of the new firm. The fall in price is less than the decline in cost.
Question 23
The total revenue curve of a monopolist is:
U-shaped.
inverted U-shaped.
upward sloping.
downward sloping.