What assumptions are necessary for a market to be perfectly competitive? Explain why each of these assumptions is important
What will be an ideal response?
The assumptions necessary for a market to be perfectly competitive are:
1. There are many buyers and sellers, all of whom are small relative to the market. This assumption ensures that each seller (or firm) and buyer is a price taker. A price taker cannot affect the market price.
2. All firms sell identical products. This condition excludes the possibility of any product differences which might justify different prices. Because the consumer cannot differentiate between products of different producers, any firm that charges a higher price will lose all its customers.
3. No barriers to new firms entering the market or exiting the market. This assumption guarantees that economic profits earned in the short run will be eliminated in the long run. In the long run, perfectly competitive firms will break even.
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Use the following information to answer the next question.The following items describe the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment.Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month but still has not gotten a job offer.George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few months when national economic conditions improve.Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the Federal government cut defense spending. She has been looking for similar work for a year but no company seems interested in
her aircraft design skills.Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year but was unsuccessful and quit looking for work. Which individual is frictionally unemployed? A. Mollie B. Ricardo C. Jeanette D. George
Ace has always been a top student, so it was no surprise he won a $1,500 scholarship from the company where he worked summers to help with college expenses. Ace decides to spend his scholarship money on a new Apple MacBook. How will GDP be affected by Ace's recent purchases?
A. Consumption will go up by $1,500, because a computer is a durable good. B. Investment will go up by $1,500, because a computer is a durable good. C. GDP will not be affected, since Ace acquired the computer with scholarship money. D. Consumption will go up by $1,500, because a computer is a nondurable good.
The value of the GDP deflator for a country whose nominal GDP was $102 billion in 2013 and real GDP (relative to the base year 2010) was $90 billion would be approximately _____
a. 100 b. 102 c. 90 d. 113
According to the classical economists, if the quantity of money that people wanted to save was less than the amount that people wanted to invest,
A. the interest rate would fall. B. the interest rate would rise. C. this situation would cause hyperinflation. D. this situation would cause stagflation.