Question 1

Historical note: Because of its military importance, the U.S. government exercised monopoly control over which one of the following goods before World War II?

Accepted Answer

The U.S. government exercised monopoly control over helium because of its military importance, particularly for airships and later for other military applications, before World War II.

Question 2

A monopoly whose monopoly power is based on its exclusive access to a resource is always threatened by the possibility of

Accepted Answer

Technological change can lead to the development of alternatives or substitutes for the resource, reducing the monopoly's power.

Question 3

Legally, a patent grants a firm an exclusive right to its innovation for a period of

Accepted Answer

In most countries, a patent grants an exclusive right to an innovation for a period of up to 20 years from the filing date, which effectively can be around 17 years from the grant date due to the time it takes for the patent to be granted. The options provided do not include 20 years, so the closest and historically accurate option for certain types of patents, such as design patents in the United States before certain changes, is 17 years.

Question 4

Historical note: Andrew Carnegie became an industrial mogul by consuming or buying out his competition in the _________ industry.

Accepted Answer

Andrew Carnegie became an industrial mogul primarily in the steel industry, where he focused on expanding his empire by acquiring competitors and improving the efficiency and productivity of his steel mills.

Question 5

The lack of success among monopolistic competitive and oligopolistic firms to become monopolies can be attributed primarily to

Accepted Answer

The primary reason monopolistic competitive and oligopolistic firms struggle to become monopolies is their inability to establish effective barriers to entry. Barriers to entry are crucial for maintaining a monopoly, as they prevent new competitors from entering the market and challenging the dominant firm's position. Without significant barriers, it's difficult for any firm to secure a monopoly status.

Question 6

Even if the steel industry is an oligopoly, there may be more firms competing with the steel firms than you would think because

Accepted Answer

Firms in other industries producing close substitutes (such as aluminum or composite materials) can compete with steel firms, expanding the competitive landscape beyond the immediate oligopoly.

Question 7

The physical or perceived differences between goods in a market that makes them close, but not perfect, substitutes are called

Accepted Answer

Product differentiation refers to the process of distinguishing a product or service from others, to make it more attractive to a particular target market. This involves differentiating it from competitors' products as well as a company's own products.

Question 8

Lisa prepared a delicious dinner for her friends after making the following purchases at the local supermarket. For which of the purchases would Lisa not be choosing amonggoods having product differentiation?

Accepted Answer

Fresh eggplant is typically a standardized product with little differentiation, unlike the other items which can vary by brand, quality, or type.

Question 9

The big labels in the music industry, such as Sony, Time-Warner, and Universal, are churning out thousands of CD albums each year that compete against each other for your dollar. But, considering the CD industry only, they also compete against

Accepted Answer

Used CDs directly compete with new CDs in the market, as consumers may opt to purchase used versions for a lower price instead of new ones, affecting the sales of new CDs produced by big labels.

Question 10

Firms in monopolistic competition and oligopoly depend on some degree of brand loyalty. Which goods are able to command the most brand loyalty?

Accepted Answer

Cigarettes tend to command the most brand loyalty due to addictive properties and strong brand identity.

Question 11

Suppose Jack Weldon came up with a novel idea of making lamps out of recycled automobile tires. His firm, No-Skid Lamps, works three shifts a day trying to keep up with demand. Attracted by its success, other firms copy the idea and produce similar lamps. As a result, No-Skid Lamps' demand curve

Accepted Answer

When other firms enter the market with similar products, the demand for No-Skid Lamps' products would decrease as consumers now have more options to choose from. This shift to the left indicates a decrease in demand. Additionally, the presence of substitutes increases the elasticity of demand for No-Skid Lamps' products, as consumers can easily switch to another brand, making the demand curve more elastic.

Question 12

Every time new firms enter a monopolistic competitive market, the firms already in the market find their

Accepted Answer

In a monopolistically competitive market, when new firms enter, the existing firms face increased competition for the same group of customers. This leads to a decrease in the demand for each existing firm's product as consumers now have more options to choose from. Consequently, the demand curve for each existing firm shifts to the left, indicating a decrease in the quantity demanded at any given price. This shift does not necessarily imply a change in price, cost curves, profits, or the elasticity of demand in the ways described by the other options.

Question 13

Judy's Gymnastics is one of a number of firms in an area offering children's gymnastics programs. Judy's advertises that her program is different from all the others because of the classical music she plays during classes. Judy's advertising campaign is

Accepted Answer

Judy's advertising campaign is aimed at differentiating her gymnastics program from competitors by highlighting the unique aspect of classical music during classes, which can attract more customers and increase her market share.

Question 14

LISA BETH Mustard Company undertakes an advertising campaign and finds that within the industry's relevant price range, the price elasticity of demand for its own mustard fell from 3.5 to 0.94. As a result, we would expect that LISA BETH

Accepted Answer

When the price elasticity of demand decreases from 3.5 (elastic demand) to 0.94 (inelastic demand), it means that consumers are less sensitive to price changes. In this case, raising prices would lead to an increase in total revenue because the percentage decrease in quantity demanded would be smaller than the percentage increase in price.

Question 15

In a market where all goods are perfect substitutes for each other,

Accepted Answer

In a market where all goods are perfect substitutes, the market is perfectly competitive because consumers can easily switch from one product to another without any loss of utility, leading to intense competition among sellers to offer the best price and quality.

Question 16

In the long run, monopolistic competition

Accepted Answer

In the long run, monopolistic competition results in many firms in the industry due to low barriers to entry, allowing new firms to enter and compete, leading to normal profits and product differentiation.

Question 17

Perfect competition has all of the following features except

Accepted Answer

In a perfectly competitive market, all products are considered perfect substitutes, meaning there is no brand loyalty. Consumers do not prefer one product over another based on brand, which is a key characteristic that differentiates perfect competition from other market structures.

Question 18

If people cannot distinguish between goods A and B, then economists describe the goodsas

Accepted Answer

When goods are perfect substitutes, it means consumers are indifferent between them and can replace one with the other without any loss of utility, which is why economists describe such goods as being perfect substitutes.

Question 19

Think of the characteristics of perfect competition and use them to decide which of the following firms is most likely to belong in a perfectly competitive market.

Accepted Answer

A corn farm is most likely to belong in a perfectly competitive market because it typically involves many small producers, homogeneous products, and easy entry and exit, which are key characteristics of perfect competition.

Question 20

If all the firms producing a good in an industry have market shares that are in significant,that is, close to zero percent of industry sales,

Accepted Answer

In a perfectly competitive market, firms have insignificant market shares, indicating that no single firm can influence market prices or conditions significantly. This scenario describes a characteristic of perfect competition.

Quiz 10: Identifying Markets and Market Structures