Unit 5 Economics Review

Key characteristics of a purely competitive market include:

• Many buyers and sellers, identical products, easy entry and exit

• Few sellers, unique products, high barriers to entry

• One seller, no close substitutes, complete control over price

• Differentiated products, some control over price, many sellers

Define “monopoly” and select the correct example from the options below.

• A market structure with a single seller; for example, a local water utility company.

• A market with many sellers offering identical products; for example, wheat farming.

• A market with a few large firms dominating; for example, the automobile industry.

• A market with many sellers offering differentiated products; for example, the restaurant industry.

Firms in monopolistic competition differentiate their products by:

• offering unique features, branding, or quality variations

• setting the same price as competitors

• producing identical goods as in perfect competition

• restricting output to increase prices

An oligopoly is a market structure characterized by a few large firms dominating the industry. Which of the following industries best fits this structure?

• Automobile industry

• Wheat farming

• Local barber shops

• Electric utility monopoly

Why is price-setting rare in pure competition?

• Because there are many sellers offering identical products, making it impossible to influence the market price.

• Because firms in pure competition have significant control over prices.

• Because government regulations set the prices in pure competition.

• Because each firm produces a unique product in pure competition.

ECO-FE 8A – An example of a monopolistic competition market is:

• The fast food restaurant industry

• The local water utility company

• The market for diamonds controlled by De Beers

• The wheat farming industry

Monopolies often face government regulation because:

• they can restrict competition and exploit consumers

• they always provide the lowest prices

• they encourage innovation without oversight

• they have no impact on the market

Oligopolistic firms are interdependent because:

• each firm's actions affect the others in the market.

• they operate in completely separate markets.

• they have no influence on each other's pricing.

• they are regulated by a single authority.

Advertising plays a significant role in monopolistic competition by:

• Differentiating products and attracting customers

• Eliminating all competition in the market

• Setting a single price for all firms

• Preventing new firms from entering the market

A disadvantage for consumers in a monopoly is:

• Higher prices due to lack of competition

• More choices for products

• Lower prices due to competition

• Easier market entry for new businesses