Why would a profit maximizing monopolist in a contestable market set its price at a level below that which maximizes short run profits?
What will be an ideal response?
A firm in a contestable market is not protected by barriers to entry. Thus while it is currently the only firm in the market, it might worry that other firms will enter the market. In this case, setting a relatively lower price is known as limit pricing. It is a pricing strategy that deters entry by sending a signal to potential entrants that entering the industry would result in economic losses.
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Comment on the following statement. "Taxing externality-producing activities may not eliminate damages."
What will be an ideal response?
In comparison to the oversimplified formula for the multiplier, the real-world multiplier is
a. lower. b. higher. c. almost equal to it. d. higher if taxes are included.
Which of the following is a difference between a perfectly elastic demand curve and a perfectly inelastic demand curve?
a. A perfectly elastic demand curve is parallel to the horizontal axis, while a perfectly inelastic demand curve is parallel to the vertical axis. b. A perfectly elastic demand curve is parallel to the vertical axis, while a perfectly inelastic demand curve is parallel to the horizontal axis. c. A perfectly elastic demand curve is downward sloping, while a perfectly inelastic demand curve is upward sloping. d. A perfectly elastic demand curve is upward sloping, while a perfectly inelastic demand curve is downward sloping.
Under a flexible exchange rate system, one factor that does NOT directly affect rates of exchange is
A. changes in the inflation rate in each country. B. changes in gold holdings in each country. C. changes in productivity in each country. D. changes in economic stability in each country.