Why do barriers to entry create market power?
What will be an ideal response?
Barriers to entry create market power because it is difficult for firms to enter even if the incumbents are enjoying excessive profits (firms in the market would have the ability to determine price due to lack of competition). In a competitive market with no entry barriers, economic profits would be bid down to zero by entry.
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Joe Doakes is running for reelection. Economic theory predicts he has a strong incentive to
A) heavily discount the value of all future costs of his policies. B) try to provide as many benefits to his constituents as possible prior to the next election day. C) do both A and B above. D) do none of the above.
A progressive income tax is one that
A) taxes income so that the average tax rate decreases with the level of income. B) taxes all income above the guaranteed minimum at an average rate that decreases with income. C) taxes income so that the average tax rate increases with the level of income. D) taxes income at a constant rate, regardless of the level of income.
When U.S. Steel, a steel producer, bought control of iron ore companies at the beginning of the 20th century, the company was initiating
A) a horizontal merger. B) a vertical merger. C) a cartel. D) an expropriation.
For society, more money means more wealth
a. True b. False Indicate whether the statement is true or false