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Competitive Markets
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Competitive Markets
Q1
Which of the following is not a characteristic of a competitive market?
Competitive Markets
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A key feature of the competitive market is the fact that there are many buyers and many sellers.
Many buyers and sellers
Correct!
Prices are not determined by sellers alone, buyers and sellers come together in the market to determine the price of goods and services.
Sellers control the price
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A competitive market allows for firms to freely enter and exit the market. There are low costs of doing either one.
Firms can easily enter and exit the market
Q2
In the product market:
Types of Markets
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Businesses demand the factors of production, not goods and services. They are the demanders in the resource market.
Households supply the factors of production, not goods and services. They are the suppliers in the resource market.
businesses are the demanders and households are the suppliers
Correct!
Businesses supply goods and services they have produced.
Households demand goods and services.
households are the demanders and businesses are the suppliers
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Households are only demanders in the product market. They do not produce goods and services.
households are both the suppliers and demanders
Q3
One assumption of our demand and supply model is that all goods:
Assumptions
Correct!
Goods and services are assumed to be homogeneous, or very similar in quality.
are of similar quality.
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Are assumptions do not say anything about the cost of production. We will see only the lowest cost producers produce the good or service, but that does not mean they have equal costs.