Identify the truthfulness of the following statements.
I. In perfectly competitive markets there are no externalities. That is, actions of decision-makers on each others' well being do not extend beyond those effects transmitted by prices.
II. Partial equilibrium analysis determines equilibrium in a single market, taking the prices and outputs of other markets as fixed.
A) Both I and II are true.
B) Both I and II are false.
C) I is true; II is false.
D) I is false; II is true.

Question

Identify the truthfulness of the following statements. 
I. In perfectly competitive markets there are no externalities. That is, actions of decision-makers on each others' well being do not extend beyond those effects transmitted by prices.
II. Partial equilibrium analysis determines equilibrium in a single market, taking the prices and outputs of other markets as fixed.
A) Both I and II are true.
B) Both I and II are false.
C) I is true; II is false.
D) I is false; II is true.

Quizplus · Accepted Answer

In perfectly competitive markets, externalities are assumed to be absent, meaning all effects are transmitted through prices. Partial equilibrium analysis indeed focuses on a single market, assuming other markets remain constant.

Identify the Truthfulness of the Following Statements