What is required for a market to be considered monopolistically competitive? How does the equilibrium in a monopolistically competitive market resemble that in a perfectly competitive market? How are they different?
What will be an ideal response?
A monopolistically competitive market is one in which many firms produce similar but differentiated products. Each firm gains some market power from product differentiation and thus faces a downward-sloping-but highly elastic-demand curve. Free entry and exit of firms drive long-run profits to zero in both monopolistically competitive and perfectly competitive markets. However, competitive firms use marginal cost pricing, while monopolistically competitive firms charge prices in excess of their marginal costs. Furthermore, a competitive industry's output is produced at the lowest possible cost in long-run equilibrium. This result does not hold in monopolistic competition since firms' demand curves are not perfectly elastic.
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The response of investment spending to an increase in the government budget deficit is called
A) private dissaving. B) expansionary investment. C) income minus net taxes. D) crowding out. Figure 21-5
If inflation is positive and is perfectly anticipated
A) those that lend money lose. B) no one in the economy loses. C) those that borrow money lose. D) those that hold paper money lose.
When a market operates so that there are no shortages and no surpluses, then the market is
A. free. B. in equilibrium. C. in disequilibrium. D. subject to non-market intervention.
Referring to Figure 18.2, Mexican goods will become more expensive in the United States if the exchange rate goes from ________ to ________ pesos to the dollar.
A. 12; 11 B. 12; 13 C. 11; 13 D. 10; 13