What is a price taker? Discuss the assumptions used to obtain the perfectly competitive model
What will be an ideal response?
A price taker, or perfectly competitive firm, is a firm that must take the market price of its product as given because it cannot influence the market price. The model of perfect competition has four assumptions. There is a large number of buyers and sellers, and no one has any influence on the market price. The product is homogeneous, so the output of one firm is a perfect substitute for the output of another firm. Buyers and sellers have all the information they require to determine the lowest price and best production technique. Finally, all firms can easily enter or leave the industry.
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Suppose the economy is at a short-run equilibrium with real GDP greater than potential GDP. Which of the following fiscal policies would decrease real GDP and the price level?
a) an increase in government expenditure b) a decrease in taxes c) an increase in taxes d) none of the above is correct
The expenditure approach to deriving gross domestic product sums the following categories of spending
A. consumption, government spending, transfer payments, and net exports. B. consumption, investment, government spending, and net exports. C. consumption, savings, investment, and government spending. D. consumption, income, government spending, and net exports.
Stopping inflation
A. may be costly, if the inflation is stopped by inducing a recession. B. will have no benefits or costs associated with it. C. may be costly, but the benefits of stopping inflation will always outweigh the costs of such actions. D. can only benefit the economy, because the price level will be reduced.
Refer to the given data. Assume that before specialization and trade, Gamma and Sigma both chose production possibility "C." Now if each specializes according to comparative advantage, the gains from specialization and trade will be:
Answer the question on the basis of the following production possibilities data for Gamma and Sigma. All data are in tons.
A. 40 tons of pots.
B. 20 tons of tea and 20 tons of pots.
C. 20 tons of tea.
D. 40 tons of tea.