Why is the demand for a perfectly competitive firm's good perfectly elastic even though the market demand is not?
What will be an ideal response?
Each firm takes the market price as given. Because each firm's good can be perfectly substituted with any other firm's product, consumers will only pay the market price. Hence, any deviation above the market price causes the firm's sales to plunge to zero and any deviation below causes the firm's sales to soar to the entire amount sold in the market.
You might also like to view...
How do households make saving decisions?
What will be an ideal response?
Explain why when Norway unilaterally fixes its exchange rate against the euro but leaves the krone free to float against the non-euro currencies, it is unable to keep at least some monetary independence
What will be an ideal response?
When unions raise wages in one part of the economy, the supply of labor increases in other parts of the economy, which reduces wages in industries that are not unionized
a. True b. False Indicate whether the statement is true or false
Workers in unions reap the benefit of collective bargaining, while workers not in unions bear some of the cost
a. True b. False Indicate whether the statement is true or false