Several years ago, Alcoa was effectively the sole seller of aluminum because the firm owned nearly all of the aluminum ore reserves in the world. This market was not perfectly competitive because this situation violated the:
A) price-taking assumption.
B) homogeneous product assumption.
C) free entry assumption.
D) A and B are correct.
E) A and C are correct.
E
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A prediction based on rational expectations ________
A) relies solely on past experience B) will always be superior to one based on adaptive expectations C) is based on real, rather than nominal variables D) will not always be accurate
Which of the following statements about the substitution effect of a price change is true?
a. It is caused by a change in relative prices. b. It affects the consumer's ability, rather than willingness, to purchase a good. c. It assumes that the consumer substitutes more expensive goods for cheaper ones when income increases. d. It is usually equal to the income effect. e. It may cause the consumer to buy less of the good when its price falls.
Given a nominal interest rate of 6 percent, in which of the following cases would you earn the lowest after-tax real rate of interest?
a. Inflation is 4 percent; the tax rate is 5 percent. b. Inflation is 3 percent; the tax rate is 20 percent. c. Inflation is 2 percent; the tax rate is 30 percent. d. The after-tax real interest rate is the same for all of the above.
The theory of purchasing-power parity primarily explains
a. why trade deficits tend to move to zero over time. b. how foreign prices affect domestic prices. c. the determination of the real exchange rate. d. why a change in the real exchange rate changes a country's net exports.