The pass through rate
A) Is always greater than one in a perfectly competitive market
B) Is never greater than one in a perfectly competitive market
C) Is always greater than one for a monopolist
D) Is always less than one for a monopolist

Question

Quizplus · Accepted Answer

The pass through rate refers to the percentage of a tax or cost that is passed on to consumers in the form of higher prices. In a perfectly competitive market, firms cannot pass on any extra costs to consumers in the form of higher prices, as doing so would cause them to lose customers to competitors who can offer lower prices. Therefore, the pass through rate is never greater than one in a perfectly competitive market. A monopolist, on the other hand, has the ability to pass on costs to consumers, as they have no close substitutes. Therefore, the pass through rate is always greater than one for a monopolist.

The Pass Through Rate