What are the major features of monopolistic competition compared to pure competition and pure monopoly?
What will be an ideal response?
In monopolistic competition, there are a relatively large number of firms, not the thousands of firms as in pure competition. The monopolistic ally competitive firms produce differentiated products, not the standardized products of pure competition. Product differentiation means that monopolistic competitors engage in some price competition because they have some limited “price making” ability based on the less elastic demand for their particular product. This demand, however, is more elastic than the demand for monopolists’ products. Monopolistic competitors, unlike most monopolists and all purely competitive firms, will engage in non price competition that gets reflected in product quality, services, location, advertising, and packaging. Compared with monopoly, the barriers to entry for monopolistic ally competitive firms are minor. The firms typically are small in size, operate independently, and do not practice collusion.
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All of the following shift the supply of watches to the right except
a. an increase in the price of watches b. an advance in the technology used to manufacture watches c. a decrease in the wage of workers employed to manufacture watches d. manufacturers' expectations of lower watch prices in the future. e. All of the above cause an increase in the supply of watches.
The Fed purchases $200 worth of government bonds from the public. The reserve requirement is 12.5 percent, people hold no currency, and the banking system keeps no excess reserves. The U.S. money supply eventually increases by
a. $25. b. between $200 and $300. c. $1,600. d. $2,500.
A tax cut shifts the aggregate demand curve the farthest if
a. the MPC is large and if the tax cut is permanent. b. the MPC is large and if the tax cut is temporary. c. the MPC is small and if the tax cut is permanent. d. the MPC is small and if the tax cut is temporary.
The estimated demand for a good is
= 4800 - 16P - 0.65M - 1.5PRwhere Q is the quantity demanded of the good, P is the price of the good, M is income, and PR is the price of related good R. If income decreases by $2,000, all else constant, quantity demanded will ________ by ________ units.
A. increase; 1.30 units B. increase; 1,300 units C. decrease; 65 units D. decrease; 6.5 units