Entry of firms in a monopolistically competitive industry is characterized by two externalities. List them and briefly describe how consumers and existing firms are influenced by them
Business-stealing effect: incumbent firms are affected through the loss of sales; consumers are affected by lower price.
Product-variety effect: incumbent firms face a market with more substitutes; consumers have more product variety from which to choose.
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Consider an income tax and a head tax, the sizes of which have been set so that the government collects the same amount of money under each tax. Which tax does the consumer prefer?
a. The consumer is indifferent between the two taxes, since he pays the same amount of money under each tax.
b. The consumer prefers the head tax, because it does not lower the relative wage as does the income tax.
c. The consumer prefers the income tax, because it can be avoided by increasing the amount of leisure time consumed.
d. The consumer may prefer either tax, depending on whether the income tax increases or decreases the number of hours of work at the optimum.
Which of the following changes in the exchange rate represents a depreciation of the dollar?
a. 100 yen = $1 to 110 yen = $1 b. 1 yen = $.10 to 1 yen = $.08 c. 1 peso = $10 to 1 peso = $11 d. 200 francs = $10 to 250 francs = $10
An annual income of less than $24,000 is
A. In-kind income. B. Below the poverty threshold. C. The poverty rate. D. Extreme poverty.
If the four-firm concentration ratio for industry X is 80:
A. the four largest firms account for 80 percent of total sales. B. each of the four largest firms accounts for 20 percent of total sales. C. the four largest firms account for 20 percent of total sales. D. the industry is monopolistically competitive.