Market Models Quiz

Which of the following is NOT one of the four major market models?

• Pure Competition

• Monopolistic Competition

• Oligopoly

• Resource Market

Answer explanation

The four major market models are Pure Competition, Monopolistic Competition, Oligopoly, and Monopoly. The Resource Market refers to a different concept and is not classified as one of the major market models.

What is the primary characteristic that distinguishes different market models?

• The price of goods

• The number of firms in the market

• The color of the products

• The location of the market

Answer explanation

The primary characteristic that distinguishes different market models is the number of firms in the market. This affects competition levels, pricing strategies, and market dynamics, unlike the other options listed.

In which market model do firms have the most market power?

• Pure Competition

• Monopolistic Competition

• Oligopoly

• Monopoly

Answer explanation

In a monopoly, a single firm dominates the market, allowing it to set prices and control supply without competition. This gives it the most market power compared to pure competition, monopolistic competition, and oligopoly.

Which of the following is a characteristic of a purely competitive market?

• Unique product offerings

• Price-making ability for individual firms

• Many buyers and sellers

• Barriers to entry are high

Answer explanation

A purely competitive market is characterized by many buyers and sellers, ensuring no single entity can influence prices. This contrasts with unique products, price-making ability, and high barriers to entry, which are not typical in such markets.

Which scenario best represents a purely competitive market?

• A local coffee shop with loyal customers

• The agricultural market for wheat

• The global market for smartphones

• The market for luxury cars

Answer explanation

The agricultural market for wheat best represents a purely competitive market because it has many buyers and sellers, homogeneous products, and easy entry and exit, unlike the other options which have brand loyalty or differentiation.

In pure competition, the product sold by each firm is:

• Differentiated

• Unique

• A luxury item

• Homogeneous

Answer explanation

In pure competition, firms sell identical products, meaning they are homogeneous. This characteristic ensures that consumers perceive no difference between the products offered by different firms.

In a purely competitive market, the demand curve for an individual firm is:

• Downward sloping

• Vertical

Answer explanation

In a purely competitive market, an individual firm's demand curve is vertical because it is a price taker. The firm can sell any quantity at the market price, but cannot influence the price itself.

What does a perfectly elastic demand curve imply for a purely competitive seller?

• They can set any price they want.

• They can only sell a limited quantity.

• They must accept the market price.

• They have significant control over price.

Answer explanation

A perfectly elastic demand curve means that consumers will only buy at the market price. Therefore, a purely competitive seller must accept the market price and cannot set their own prices.

If a purely competitive firm raises its price above the market price, what happens to its sales?

• Sales increase

• Sales remain constant

• Sales decrease slightly

• Sales drop to zero

Answer explanation

In a purely competitive market, if a firm raises its price above the market price, consumers will buy from other firms offering the lower price. Therefore, the firm's sales will drop to zero.

In the total-revenue-total-cost approach to profit maximization, when is profit maximized?

• When total cost is at its lowest

• When total revenue exceeds total cost by the greatest amount

• When total revenue and total cost are equal

• When marginal cost is at its lowest

Answer explanation

Profit is maximized when total revenue exceeds total cost by the greatest amount, as this indicates the highest profitability. Other options do not reflect the true maximization of profit.