Chapter 7 - Market Structure - Quiz, Trivia & Questions

1.

Why doesn’t the market system work to provide street lighting and other public goods?
- A.
  
  Too few of these services are available.
- B.
  
  Important needs cannot be left to chance.
- C.
  
  Voters put pressure on local governments.
- D.
  
  There is no easy way to charge individual users
Correct Answer
D. There is no easy way to charge individual users

Explanation
The market system relies on individual users paying for the goods and services they consume. However, when it comes to public goods like street lighting, it is difficult to charge individual users because the benefits are shared by the entire community. Since there is no easy way to determine and collect payments from individual users, the market system fails to provide these public goods efficiently.

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2.

Why is competition among restaurants in a big city an example of monopolistic competition?
- A.
  
  Starting a restaurant is expensive.
- B.
  
  Restaurants often go out of business.
- C.
  
  All restaurants serve food, and each restaurant is distinctive.
- D.
  
  All restaurants serve people, and one restaurant serves the most people.
Correct Answer
D. All restaurants serve people, and one restaurant serves the most people.

Explanation
This answer is correct because monopolistic competition refers to a market structure where there are many firms selling differentiated products. In this case, all restaurants serve people, which implies that they are all part of the same market. The statement "one restaurant serves the most people" suggests that there is some level of market power or dominance by one particular restaurant, which is a characteristic of monopolistic competition.

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3.

Which of these is the best example of an externality?
- A.
  
  You decide to stop snacking between meals.
- B.
  
  You enjoy looking at your neighbor’s garden.
- C.
  
  Your shoe store stops selling your favorite style.
- D.
  
  Your new bicycle goes faster than you expected
Correct Answer
B. You enjoy looking at your neighbor’s garden.

Explanation
The best example of an externality is when you enjoy looking at your neighbor's garden. An externality occurs when the actions of one person or entity affect the well-being of others, without any compensation or payment. In this case, your enjoyment of your neighbor's garden is not a result of any direct transaction or interaction between you and your neighbor, but rather a positive externality that you receive from their actions.

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4.

In a market with perfect competition, how are prices determined?
- A.
  
  by supply and demand
- B.
  
  By government regulation
- C.
  
  By cultural ideals of fairness
- D.
  
  By agreement among producers
Correct Answer
A. by supply and demand

Explanation
In a market with perfect competition, prices are determined by supply and demand. This means that the price of a product or service is influenced by the amount of supply available and the level of demand from consumers. When supply is high and demand is low, prices tend to decrease. Conversely, when supply is low and demand is high, prices tend to increase. In a perfect competition market, there is no government regulation or agreement among producers that directly influences prices. Prices are solely determined by the forces of supply and demand.

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5.

In which market structure do producers have the most market power?
- A.
  
  Monopolistic competition
- B.
  
  Monopoly
- C.
  
  oligopoly
- D.
  
  Perfect competition
Correct Answer
B. Monopoly

Explanation
In a monopoly market structure, there is only one seller or producer of a particular product or service. This gives the producer a significant amount of market power as they have complete control over the supply and price of their product. They can set prices at a level that maximizes their profits without worrying about competition from other sellers. This lack of competition allows monopolies to have the most market power compared to other market structures.

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6.

Many teenagers in a particular neighborhood work as babysitters a few hours a week. They have different personalities and degrees of experience. What is the market structure for babysitting in that neighborhood?
- A.
  
  Monopolistic competition
- B.
  
  monopoly
- C.
  
  Oligopoly
- D.
  
  Perfect competition
Correct Answer
A. Monopolistic competition

Explanation
The market structure for babysitting in that neighborhood is monopolistic competition. This is because there are many teenagers working as babysitters, indicating a large number of sellers. Additionally, each teenager has a different personality and degree of experience, which leads to product differentiation. This means that each babysitter offers a slightly different service, creating some level of market power for the individual sellers. However, there is still freedom of entry and exit in the market, making it different from a monopoly or oligopoly. Perfect competition is also not applicable as there is product differentiation.

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7.

Market structures with only a few producers, each offering a product similar or identical to the others, are typically referred to as
- A.
  
  Monopoly markets.
- B.
  
  Monopolistically competitive markets.
- C.
  
  Oligopoly markets.
- D.
  
  Competitive markets
Correct Answer
C. Oligopoly markets.

Explanation
Market structures with only a few producers, each offering a product similar or identical to the others, are typically referred to as oligopoly markets. In oligopoly markets, there are a small number of firms that dominate the industry and have significant market power. These firms often compete with each other through non-price competition, such as advertising and product differentiation, as well as through pricing strategies. The presence of only a few producers and the similarity of their products make oligopoly markets distinct from monopoly markets, where there is only one producer, and from monopolistically competitive markets, where there are many producers offering differentiated products.

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8.

Under perfect competition,
- A.
  
  no seller sells a product above the market price.
- B.
  
  a single seller can affect price.
- C.
  
  Products are similar but not identical.
- D.
  
  Numerous restrictions prevent firms from entering the market.
Correct Answer
A. no seller sells a product above the market price.

Explanation
Under perfect competition, no seller sells a product above the market price. This is because in a perfectly competitive market, there are many buyers and sellers, and no individual seller has the power to influence or set the price. The price is determined solely by the market forces of supply and demand. If a seller were to sell a product above the market price, buyers would simply choose to purchase from another seller offering the same product at a lower price, resulting in the seller losing customers and market share. Therefore, in a perfectly competitive market, sellers have to accept the prevailing market price for their product.

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9.

In this market structure, when a major airline lowers its prices, other airlines will probably
- A.
  
  Go out of business.
- B.
  
  Raise their prices.
- C.
  
  lower their prices.
- D.
  
  Maintain existing prices.
Correct Answer
C. lower their prices.

Explanation
In a competitive market structure, when a major airline lowers its prices, other airlines will likely lower their prices as well. This is because they want to remain competitive and attract customers who may be drawn to the lower prices offered by the major airline. By lowering their prices, the other airlines aim to retain their market share and prevent customers from switching to the major airline. Therefore, the most likely response of other airlines in this market structure would be to lower their prices.

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10.

Positive and negative externalities are MOSTLY called market failures because
- A.
  
  They provide public goods.
- B.
  
  They lead to higher price.
- C.
  
  They cause imperfect competition.
- D.
  
  their costs and benefits are not reflected in the market prices paid by buyers and sellers (or the demand and supply model).
Correct Answer
D. their costs and benefits are not reflected in the market prices paid by buyers and sellers (or the demand and supply model).

Explanation
Positive and negative externalities are mostly called market failures because their costs and benefits are not reflected in the market prices paid by buyers and sellers. This means that the true social costs or benefits of these externalities are not taken into account in the pricing mechanism of the market. As a result, the market fails to efficiently allocate resources and achieve an optimal outcome.

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Chapter 7 - Market Structure

Why doesn’t the market system work to provide street lighting and other public goods?

Why is competition among restaurants in a big city an example of monopolistic competition?

Which of these is the best example of an externality?

In a market with perfect competition, how are prices determined?

In which market structure do producers have the most market power?

Many teenagers in a particular neighborhood work as babysitters a few hours a week. They have different personalities and degrees of experience. What is the market structure for babysitting in that neighborhood?

Market structures with only a few producers, each offering a product similar or identical to the others, are typically referred to as

Under perfect competition,

In this market structure, when a major airline lowers its prices, other airlines will probably

Positive and negative externalities are MOSTLY called market failures because