Question 1

Which of the following statements about markets and industries is TRUE?
A) A market includes buyers but not sellers.
B) A market includes sellers but not buyers.
C) An industry includes buyers but not sellers.
D) An industry includes sellers but not buyers.

Accepted Answer

An industry includes sellers but not buyers. An industry refers to the group of companies or businesses that produce similar goods or services. It includes all the sellers of a particular product or service. On the other hand, a market includes both buyers and sellers. It refers to the group of potential or actual customers who are willing and able to buy a particular product or service.

Question 2

Why is market definition important for economic decision making?
A) A firm is interested in knowing its actual and potential competitors.
B) A firm will define its market in order to maximize revenue.
C) Government regulators are interested in knowing the effect of mergers and acquisitions on competition and prices in a particular market.
D) both A and C
E) both A and B

Accepted Answer

Market definition is important for economic decision making as it helps firms to identify their competitors, understand competition dynamics and to maximize their revenue in the market. It also helps government regulators to evaluate the effect of mergers and acquisitions on competition and prices in a particular market. Therefore, both option A and C are correct.

Question 3

Which of the following markets has the most restrictive geographic boundary?
A) The market for retail gasoline
B) The market for housing
C) The market for gold
D) The market for beef

Accepted Answer

The market for housing has the most restrictive geographic boundary as it is highly localized to specific neighborhoods, cities, and regions. The other markets may have some regional differences, but are generally more widely available across larger geographic areas.

Question 4

Boeing Corporation and Airbus Industries are the only two producers of long-range commercial aircraft. This market is not perfectly competitive because:
A) each company has annual sales over $10 billion.
B) each company can significantly affect prices.
C) Airbus receives subsidies from the European Union.
D) Airbus cannot sell aircraft to the United States government.
E) all of the above

Accepted Answer

Each company can significantly affect prices due to their duopoly in the long-range commercial aircraft market, which deviates from perfect competition where no single firm can influence market prices.

Question 5

Which of the following features are relevant for determining the extent of a market?
A) Its geographical boundaries.
B) Technological innovations that would reduce the cost of production.
C) The range of products to be included in it.
D) both A and B
E) both A and C

Accepted Answer

The geographical boundaries (A) and the range of products included (C) are both relevant factors for determining the extent of a market. Technological innovations that would reduce the cost of production (B) may indirectly affect the extent of a market, but it is not a defining factor.

Question 6

Which of the following statements is NOT true?
A) If an economic theory is proven to be untrue, then it must be discarded.
B) If an economic theory is proven to be untrue, then it may be modified or discarded.
C) Economic theories provide the basis for making predictions.
D) Economic models are specific representations of economic theories.

Accepted Answer

Economic theories are not always completely true or false; they are often simplifications of complex scenarios. If a theory is shown to be incorrect in a given situation, it may still have validity in other contexts or require modification rather than complete abandonment.

Question 7

Use the following two statements to answer this question:
I. A market is a collection of buyers and sellers that, through actual or potential interactions, determine the price for a product or set of products.
II. An industry is a collection of markets for similar or closely related products.
A) Both I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) Both I and II are false.

Accepted Answer

The answer of Use the following two statements to answer...

Question 8

Washington D.C.'s metro train system is being extended further into the neighboring states of Maryland and Virginia, thereby reducing the cost of commuting into the United States' capitol. Other things being held constant, this can be expected to:
A) decrease the extent of the market for housing around Washington D.C.
B) increase the extent of the market for housing around Washington D.C.
C) have no effect on the extent of the market for housing around Washington D.C. as the actual geography remains unchanged.
D) have no effect on the extent of the market for housing around Washington D.C. as the range of houses available has not changed.
E) have no effect on the extent of the market for housing around Washington D.C. as property taxes have not changed.

Accepted Answer

The extension of the metro train system into neighboring states will make commuting into Washington D.C. easier and cheaper, thereby increasing the demand for housing in the region. This increase in demand is likely to expand the extent of the housing market around Washington D.C.

Question 9

Which of the following could not possibly be included in the same market as Coke?
A) Pepsi
B) Gatorade
C) Milk
D) Bread

Accepted Answer

Coke is a carbonated soft drink, which places it in the beverage market. Pepsi is its direct competitor, also a carbonated soft drink. Gatorade, although a sports drink, is still within the broader beverage market. Milk, as a drink, is also part of the beverage market. Bread, however, is a food item, not a beverage, making it the only option that wouldn't be included in the same market as Coke.

Question 10

Which of the following are examples of perfectly competitive markets?
A) Wheat
B) Textiles
C) Gold
D) The stock market
E) all of the above

Accepted Answer

A perfectly competitive market is one in which there are many buyers and sellers, and each firm produces an identical product. This means that no single firm has any market power, and the price of the product is determined by the forces of supply and demand. Wheat, textiles, gold, and the stock market are all examples of perfectly competitive markets.

Question 11

In a perfectly competitive market:
A) there are a few buyers.
B) there is a single seller.
C) there is a cartel.
D) no single buyer or seller can significantly affect the market price.

Accepted Answer

In a perfectly competitive market, there are many buyers and sellers who all have relatively small market shares. Due to the large number of participants, no single buyer or seller has enough market power to significantly affect the market price. This means that the price is determined solely by supply and demand, and all market participants must accept that price if they want to buy or sell. Cartels and monopolies are examples of imperfectly competitive markets where prices can be influenced by a single buyer or seller.

Question 12

Although there are many reasons why a market can be non-competitive, the principal economic difference between a competitive and a non-competitive market is:
A) the number of firms in the market.
B) the extent to which any firm can influence the price of the product.
C) the size of the firms in the market.
D) the annual sales made by the largest firms in the market.
E) the presence of government intervention.

Accepted Answer

A competitive market is defined as a market with many small firms that do not have the ability to influence the price of the product. In a non-competitive market, there is at least one firm that has significant market power and can influence the price of the product. Therefore, the extent to which any firm can influence the price of the product is the principal economic difference between a competitive and non-competitive market.

Question 13

Use the following statements to answer this question:
I. Political candidates need to know the geographical extent of the market for TV commercials in determining how to reach the target number of eligible voters with the smallest possible expenditure.
II. The geographical extent of the market for gasoline in Texas will determine whether an oil company drills for oil there.
A) I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) I and II are false.

Accepted Answer

The answer of Use the following statements to answer this...

Question 14

To arbitrage a price difference between two markets, you should:
A) sell in the low-price market and buy in the high-price market.
B) buy in the low-price market and sell in the high-price market.
C) sell in both markets to capture a lower average "market price."
D) none of the above

Accepted Answer

To arbitrage a price difference, you should buy in the low-price market and sell in the high-price market. This is because buying in the low-price market allows you to obtain the asset at a lower cost, and selling in the high-price market allows you to sell it at a higher price, resulting in a profit. Option A is incorrect because selling in the low-price market would result in a loss. Option C is incorrect because selling in both markets would not result in a profit as there is no price difference to take advantage of.

Question 15

An investor can acquire shares of stock in Acme Corporation either by purchasing shares on the stock market or by purchasing a bond that is convertible into shares of Acme stock. After careful study, the investor discovers that she can profit by purchasing the bond, converting it to shares of stock, and selling the stock. This practice is called:
A) selling short.
B) arbitrage.
C) profiteering.
D) dumping.
E) none of the above

Accepted Answer

This practice is called arbitrage, which involves taking advantage of price differences in different markets to make a profit. In this case, the investor is taking advantage of the difference between the price of the bond and the price of the stock to make a profit. Selling short involves borrowing shares and selling them with the expectation of buying them back at a lower price, profiteering is a term used to describe making excessive profits, and dumping refers to the practice of selling products at a loss to drive competitors out of business.

Question 16

Which of the following assertions, if proven true in a court of law, would help Archer-Daniels-Midland, a maker of corn syrup, in its attempt to acquire another corn syrup producer, the Clinton Corn Processing Company?
A) Archer-Daniels-Midland is a dominant producer of corn syrup.
B) There are no good substitutes for corn syrup for any of its major uses.
C) Archer-Daniels-Midland and the Clinton Corn Processing Company together hold only a small share of the market for sweeteners including corn syrup and sugar.
D) Archer-Daniels-Midland produces many other different agricultural products, in addition to corn syrup.

Accepted Answer

Assertion C would help Archer-Daniels-Midland in its attempt to acquire another corn syrup producer by demonstrating that the merger would not create or enhance market dominance in the sweetener market, thus potentially alleviating antitrust concerns.

Question 17

Although the U. S. airline industry has only a relatively small number of sellers, the market is nevertheless highly competitive. The reason is that:
A) the number of buyers is very large.
B) due to fierce competition, no firm has significant control over prices.
C) due to fierce competition, no firm has significant control over the quantity supplied.
D) most airline routes are served by relatively many sellers.

Accepted Answer

Despite there being only a small number of sellers in the U.S. airline industry, the market remains highly competitive due to fierce competition and the absence of any one firm having significant control over prices.

Question 18

Use the following statements to answer this question:
I. The price for a given product may differ across sellers if the market is not perfectly competitive.
II. A single "market price" does not exist in imperfectly competitive markets.
A) I and II are true.
B) I is true and II is false.
C) II is true and I is false.
D) I and II are false.

Accepted Answer

The answer of Use the following statements to answer this...

Question 19

Suppose you are in charge of product pricing and marketing strategy for a pharmaceutical company. You will have greater ability to independently set prices for your product if:
A) there are no close substitutes for your product.
B) there are lots of other firms selling closely related products in your market.
C) your market is perfectly competitive.
D) none of the above

Accepted Answer

If there are no close substitutes for your product, you will have a greater ability to independently set prices as consumers will have limited options to choose from. In a market with lots of other firms selling closely related products, prices will likely be more competitive and you may have less control over pricing. A perfectly competitive market would also result in less pricing power for individual firms.

Question 20

Use the following statements to answer this question:
I. If the extent of a market is broader, it is less likely that firms in the market can influence the market price.
II. In determining whether two different products belong to the same market, it is necessary to know whether the two products can be used as substitutes for each other.
A) I and II are both false.
B) I is false, and II is true.
C) I is true, and II is false.
D) I and II are both true.

Accepted Answer

Both statements are true. Statement I is based on the concept of market power, where a broader market means more competition and less ability for firms to control prices. Statement II is based on the idea of substitutability, which is the main factor in defining a market. If two products can be used as substitutes, they belong to the same market.

Quiz 1: Preliminaries

Which of the following statements about markets and industries is TRUE?

Why is market definition important for economic decision making?

Which of the following markets has the most restrictive geographic boundary?

Boeing Corporation and Airbus Industries are the only two producers of long-range commercial aircraft. This market is not perfectly competitive because:

Which of the following features are relevant for determining the extent of a market?

Which of the following statements is NOT true?

Use the following two statements to answer this question: I. A market is a collection of buyers and sellers that, through actual or potential interactions, determine the price for a product or set of products. II. An industry is a collection of markets for similar or closely related products.

Washington D.C.'s metro train system is being extended further into the neighboring states of Maryland and Virginia, thereby reducing the cost of commuting into the United States' capitol. Other things being held constant, this can be expected to:

Which of the following could not possibly be included in the same market as Coke?

Which of the following are examples of perfectly competitive markets?

In a perfectly competitive market:

Although there are many reasons why a market can be non-competitive, the principal economic difference between a competitive and a non-competitive market is:

To arbitrage a price difference between two markets, you should:

Which of the following assertions, if proven true in a court of law, would help Archer-Daniels-Midland, a maker of corn syrup, in its attempt to acquire another corn syrup producer, the Clinton Corn Processing Company?

Although the U. S. airline industry has only a relatively small number of sellers, the market is nevertheless highly competitive. The reason is that:

Use the following statements to answer this question: I. The price for a given product may differ across sellers if the market is not perfectly competitive. II. A single "market price" does not exist in imperfectly competitive markets.

Suppose you are in charge of product pricing and marketing strategy for a pharmaceutical company. You will have greater ability to independently set prices for your product if: