Gottheil Quiz: Identifying Markets and Market Structures

Quiz
Identifying Markets and Market Structures

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1. As economists see it, the relevant market for any given good, X,: a. includes all other goods whose cross elasticities with respect to X are relatively high.
b. includes all other goods whose cross elasticities with respect to X are relatively low.
c. includes all other goods whose income elasticities are relatively high.
d. includes all other goods whose income elasticities are relatively low.
e. includes all other goods with similar price elasticities of supply.

2. As economists see it, the relevant market for any given good, X,: a. excludes all other goods whose cross elasticities with respect to X are relatively low.
b. excludes all other goods whose cross elasticities with respect to X are negative.
c. excludes all other goods whose own-price elasticities of demand are relatively low.
d. excludes all other goods whose own-price elasticities of demand are relatively high.
e. is correctly described by (a) and (b).

3. In order to belong to the same market, the cross price elasticity of demand for two goods must be: a. negative.
b. zero.
c. between 0 and +3.
d. infinity.
e. none of the above.

4. A set of market characteristics, such as the number of firms, the ease or difficulty of firm entry, and the substitutability of goods, among others, defines a market structure. Which of the following statements about this concept is correct?: a. The structure is called monopoly when there is only one firm, the entry of others is impossible, and there exist no good substitutes for the good traded.
b. The structure is called oligopoly when there are only a few firms, market entry is relatively difficult, and the goods produced by different firms are close substitutes.
c. The structure is called monopolistic competition when there are fairly large numbers of firms, market entry is relatively easy, and the goods produced by different firms, although differentiated, are close substitutes.
d. The structure is called perfect competition when the number of firms is very large, market entry is very easy, and the goods produced by different firms are perfect substitutes.
e. All of these statements are correct.

5. Mutual interdependence is a crucial fact of life in which market structure?: a. Monopoly.
b. Natural monopoly.
c. Oligopoly.
d. Monopolistic competition.
e. Perfect competition.

6. A collection of firms producing the same good is called: a. a cartel.
b. an industry.
c. a natural monopoly.
d. an oligopoly.
e. a perfect competition.

7. Which of the following statements about a natural monopoly is false?: a. It is almost always the result of a firm's exclusive access to a nonreproducible input, such as a mineral deposit.
b. It is always traceable to a special combination of a firm's average total cost and demand that allows only one firm to produce profitably in the market.
c. It tends to involve huge fixed costs before production can even begin.
d. The firm's average total cost is driven to a prohibitively high level by the appearance of a second firm in the market.
e. The firm must have exclusive access to a large market to bring its average total cost down to a reasonable range.

8. Which of the following statements correctly describes monopolies?: a. Many a monopoly has been destroyed by technical advances.
b. Many a monopoly has been destroyed by the discovery of new natural resources.
c. Many a monopoly has been created by the patent system.
d. Many a monopoly has been created by mergers.
e. All of these statements are correct.

9. If firm X were the only producer of aluminum in the entire United States,: a. it could reasonably be called a monopoly.
b. it might well be facing lots of competition in the market for X.
c. it might well be facing lots of competition in the market for Y.
d. it might well be facing lots of competition in the market for Z.
e. all of the above hold true, except (a).

10. The willingness of consumers to continue buying a good at a price higher than that of its close substitutes is called: a. brand loyalty.
b. market sharing.
c. monopolistic competition.
d. mutual interdependence.
e. product differentiation.

11. Which of the following statements correctly describes the situation facing an eroding monopoly?: a. If Coca Cola had no competitors and there were no good substitute for this product, the demand curve for Coke would be identical to the market demand curve.
b. If Coca Cola had just a few competitors who offered (imperfect) substitutes for this product, the demand curve for Coke would be steeper than the market demand curve.
c. If Coca Cola had just a few competitors who offered (imperfect) substitutes for this product, the demand curve for Coke would be flatter than the market demand curve.
d. If Coca Cola had just a few competitors who offered (imperfect) substitutes for this product, the price elasticity of demand for Coke would have a smaller (absolute) value than under a Coke monopoly.
e. If Coca Cola had just a few competitors who offered (imperfect) substitutes for this product, the price elasticity of demand for Coke would have a smaller (absolute) value than under a Coke monopoly, provided one compared it at the same price.

12. Which of the following is a correct statement about advertising?: a. Advertising by a particular firm is designed to increase the percentage of total market sales that is attributable to the advertising firm.
b. Advertising is expected to undo the effects of increasing competition.
c. Both (a) and (b) are correct.
d. Because of (a) and (b), advertising is strongest among perfect competitors, almost absent among oligopolies and totally absent for monopolies.
e. All of the above statements are correct.

13. Which of the following is a correct statement about advertising?: a. Invariably, advertising is associated with a lowering of a firm's price; given the law of demand, one cannot increase market share without it.
b. Invariably, advertising provides consumers with misinformation.
c. Almost all advertising is slick and sleazy, attempting to make a link, in consumers' minds, between a given product and sex, sports, and family.
d. Although the persuasive type of advertising noted above exists, there is also plenty of advertising that is informative and helpful to consumers.
e. The point of advertising is simply this: to shift a firm's demand curve to the right and make demand more elastic.

14. Prior to advertising, a firm's quantity demanded falls from 5,000 to 4,000 bushels per year when price is raised from $5 to $6 per bushel. After advertising, the same price hike lowers quantity demanded from 10,000 to 9,000 bushels per year. Therefore,: a. the (absolute value of the) price elasticity of demand before advertising was 0.82.
b. the (absolute value of the) price elasticity of demand before advertising was 1.22.
c. the (absolute value of the) price elasticity of demand after advertising was 1.22.
d. the (absolute value of the) price elasticity of demand after advertising was 1.73.
e. both (a) and (d) are true.

15. Which of the following is a correct statement about perfect competitors?: a. The product of each is a perfect substitute for the product of every other.
b. The market share of each is totally insignificant.
c. Market entry is extremely easy for each.
d. All of the above statements are correct.
e. If any one firm raises the price, market demand drops to zero.

16. Which of the following correctly characterizes the market demand curve under perfect competition?: a. It is vertical.
b. It is horizontal.
c. It is downward-sloping.
d. Its shape reflects the fact that no firm has an incentive to lower the price of its product and no firm can raise its price without losing all customers at once.
e. Both (b) and (d) are correct.

17. In which of the following market structures does the individual firm have no influence over the price of its own product?: a. Monopolistic competition.
b. Perfect competition.
c. Oligopoly.
d. Monopoly.
e. Natural monopoly.

18. In which of the following market structures does the individual firm worry intensely about the response of competitors to its own actions?: a. Monopolistic competition.
b. Perfect competition.
c. Oligopoly.
d. Monopoly.
e. Natural monopoly.

19. Which of the following market structures features numerous firms selling an identical product?: a. Monopolistic competition.
b. Perfect competition.
c. Oligopoly.
d. Both (a) and (b).
e. None.

20. Which of the following statements about various market structures is false?: a. Market entry is impossible in the monopoly case.
b. Despite of (a), monopoly firms may advertise.
c. To the individual perfect competitor, advertising is useless.
d. The individual monopolistic competitor faces a horizontal demand curve.
e. The individual monopolistic competitor can raise product price without reducing the quantity demanded to zero.