Perfect Competition: Characteristics, Welfare Implications, and Real-World Applications

Question 1

Which of the following is NOT a welfare implication of perfect competition?

Accepted Answer

Monopoly power

Answer

Efficient allocation of resources

Answer

Consumer sovereignty

Answer

Price stability

Question 2

What is the primary reason for government intervention in markets with perfect competition?

Accepted Answer

To correct market failures

Answer

To promote competition

Answer

To protect consumers

Answer

To increase profits

Question 3

The equilibrium quantity in a perfectly competitive market is the quantity at which:

Accepted Answer

Supply equals demand

Answer

Marginal cost equals marginal revenue

Answer

Total revenue is maximized

Answer

Average total cost is minimized

Question 4

Which of these features would NOT be found in a perfectly competitive market?

Accepted Answer

Restrictions on firms entering or leaving the market

Answer

Many small buyers and sellers

Answer

Identical products

Answer

Buyers and sellers have full market knowledge

Question 5

Which of the following is NOT a defining characteristic of perfect competition?

Accepted Answer

Impediments to market entry and exit

Answer

Numerous buyers and sellers

Answer

Standardized products

Answer

Complete knowledge of market conditions

Question 6

What is the probable impact of a government subsidy on a perfectly competitive market?

Accepted Answer

An increase in both supply and quantity supplied

Answer

A decrease in both supply and quantity supplied

Answer

An increase in supply but a decrease in quantity supplied

Answer

A decrease in supply but an increase in quantity supplied

Question 7

What is the significance of profit maximization in perfect competition?

Accepted Answer

It leads firms to produce the quantity where marginal cost equals price.

Answer

It encourages firms to engage in price competition.

Answer

It prevents new firms from entering the market.

Answer

It fosters the formation of industry cartels.

Question 8

How does consumer surplus contribute to overall welfare in a perfectly competitive market?

Accepted Answer

It represents the net benefit consumers receive by purchasing goods below their willingness to pay.

Answer

It is taxed by the government to generate revenue.

Answer

It leads to a decrease in the quantity supplied.

Answer

It has no impact on market equilibrium.

Question 9

What assumption is made about information in a perfectly competitive market?

Accepted Answer

All market participants have perfect knowledge.

Answer

Consumers are better informed than producers.

Answer

Producers are better informed than consumers.

Answer

Information is not equally distributed among market participants.

Question 10

In a perfectly competitive market, which of the following is NOT a characteristic?

Accepted Answer

Significant barriers to entry and exit

Answer

Numerous small firms

Answer

Identical products

Answer

Transparency of information

Question 11

Which of the following would NOT lead to a shift in the supply curve in a perfectly competitive market?

Accepted Answer

Changes in consumer preferences

Answer

Changes in input costs

Answer

Technological advancements

Answer

Changes in the number of firms

Question 12

Which characteristic is a defining feature of perfect competition?

Accepted Answer

Firms can easily enter or exit the market

Answer

Few dominant firms control market share

Answer

Firms offer different products

Answer

High barriers to market entry

Question 13

Which statement accurately describes the profit-maximizing output level for a firm operating in a perfectly competitive market?

Accepted Answer

When marginal revenue is equal to marginal cost

Answer

When marginal revenue is higher than marginal cost

Answer

When average revenue is greater than average cost

Answer

When total revenue is maximized

Question 14

In a perfectly competitive market, what factor primarily determines the equilibrium price?

Accepted Answer

The intersection of supply and demand

Answer

Government price controls

Answer

The cost of production

Answer

The market share of the largest firm

Question 15

What outcome characterizes the long-run equilibrium state of a perfectly competitive market?

Accepted Answer

Zero economic profits

Answer

Above-average returns for firms

Answer

Below-average returns for firms

Answer

Market dominance by a single firm

Question 16

What is a primary critique of the perfect competition model?

Accepted Answer

It assumes away many real-world market imperfections

Answer

It can lead to inefficient allocation of resources

Answer

It discourages technological advancements

Answer

It is too complex to be useful in practice

Question 17

In a perfectly competitive market, the demand curve faced by an individual firm is:

Accepted Answer

Perfectly elastic

Answer

Perfectly inelastic

Answer

Downward sloping

Answer

U-shaped

Question 18

In perfect competition, a profit-maximizing firm will produce the output level where:

Accepted Answer

Marginal cost equals price

Answer

Marginal cost is below price

Answer

Marginal cost is above price

Answer

Average total cost is at its lowest

Question 19

What is the main responsibility of the government in a perfectly competitive market?

Accepted Answer

Enforcing competition laws

Answer

Price control

Answer

Restricting market entry

Answer

Subsidizing firms

Question 20

Which of the following markets most closely resembles perfect competition?

Accepted Answer

Global agricultural commodity market

Answer

Telecommunications industry

Answer

Banking sector

Answer

Automobile industry

Question 21

The primary distinction between a perfectly competitive market and a monopoly is the:

Accepted Answer

Number of sellers

Answer

Type of product

Answer

Barriers to entry

Answer

Degree of government regulation

Question 22

In a perfectly competitive market, consumer surplus is:

Accepted Answer

Maximized

Answer

Minimized

Answer

Equal to producer surplus

Answer

Dependent on market supply

Question 23

How does perfect competition contribute to economic efficiency?

Accepted Answer

Promotes optimal resource allocation

Answer

Prevents price gouging

Answer

Guarantees equal distribution of income

Answer

Minimizes the need for government intervention

Question 24

In perfect competition, the demand curve for an individual firm is:

Accepted Answer

Horizontal

Answer

Vertical

Answer

Downward-sloping

Answer

Upward-sloping

Question 25

In a perfectly competitive market, how is the equilibrium price determined?

Accepted Answer

By the interaction of supply and demand forces

Answer

By government regulations

Answer

By the production costs of firms

Answer

By the market share of dominant firms

Question 26

In perfect competition, the profit-maximizing output level for a firm occurs when:

Accepted Answer

Marginal revenue equals marginal cost

Answer

Average revenue equals average cost

Answer

Total revenue is equal to total cost

Answer

Fixed costs are minimized

Question 27

In the long run, a perfectly competitive firm will tend to earn:

Accepted Answer

Zero economic profit

Answer

Positive economic profit

Answer

Negative economic profit

Answer

Above-normal profit

Question 28

Which of the following is NOT a desirable outcome of perfect competition?

Accepted Answer

Guaranteed high producer profits

Answer

Efficient allocation of resources

Answer

Lower consumer prices

Answer

Expanded consumer choices

Question 29

In a perfectly competitive market, what quantity will be traded?

Accepted Answer

The quantity at which price equals marginal cost

Answer

The quantity that maximizes total revenue

Answer

The quantity that maximizes producer profit

Answer

The quantity that fulfills consumer demand

Question 30

Which of the following is a key characteristic of perfect competition?

Accepted Answer

Many buyers and sellers interact in the market.

Answer

There are significant barriers to entry.

Answer

Firms can influence the market price.

Answer

Products are highly differentiated.

Question 31

In a perfectly competitive market, the equilibrium price is determined by the interaction of which two forces?

Accepted Answer

Supply and demand

Answer

Demand and marginal cost

Answer

Marginal revenue and average variable cost

Answer

Fixed costs and total revenue

Question 32

Which of the following is a benefit of perfect competition for society?

Accepted Answer

Efficient allocation of resources.

Answer

Reduced competition among firms.

Answer

Prevention of consumer choice.

Answer

Increased government intervention.

Question 33

Which of the following markets best approximates the conditions of perfect competition?

Accepted Answer

Wheat market

Answer

Health insurance market

Answer

Automobile market

Answer

Real estate market

Question 34

Which of the following government policies is most likely to promote a competitive environment in a market?

Accepted Answer

Antitrust regulations

Answer

Price supports

Answer

Import restrictions

Answer

Tax breaks for large firms

Question 35

Identify the characteristic that is NOT applicable to perfect competition?

Accepted Answer

Firms have market power

Answer

Free entry and exit

Answer

Large number of buyers and sellers

Answer

Homogeneous products

Question 36

In a perfectly competitive market, the demand curve facing an individual firm is:

Accepted Answer

Perfectly elastic

Answer

Upward sloping

Answer

Downward sloping

Answer

Vertical

Question 37

The short-run equilibrium output of a firm in perfect competition is determined when:

Accepted Answer

Marginal cost equals marginal revenue

Answer

Marginal cost exceeds marginal revenue

Answer

Average total cost equals price

Answer

Average variable cost equals price

Question 38

Which of the following is a welfare implication of perfect competition?

Accepted Answer

Efficient allocation of resources

Answer

Inefficient production levels

Answer

High barriers to entry

Answer

Consumer surplus exceeds producer surplus

Question 39

In which real-world market scenario is perfect competition most likely to be observed?

Accepted Answer

Agricultural commodities market

Answer

Automobile manufacturing industry

Answer

Telecommunications market

Answer

Banking sector

Question 40

Which of the following factors would reduce the number of firms in a perfectly competitive market?

Accepted Answer

Increased barriers to market entry

Answer

Increased supply

Answer

Reduced input costs

Answer

Reduced demand

Question 41

Which of the following is NOT an advantage of perfect competition for consumers?

Accepted Answer

Higher prices

Answer

Wide range of choices

Answer

Efficient allocation of resources

Answer

Protection from monopolies

Question 42

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

Firms can influence the market price.

Answer

Many buyers and sellers.

Answer

Identical products.

Answer

Free entry and exit.

Question 43

In a perfectly competitive market, the equilibrium price and quantity occur where:

Accepted Answer

The supply and demand curves intersect.

Answer

Price is above marginal cost.

Answer

Price is below marginal cost.

Answer

Quantity supplied equals zero.

Question 44

Which of the following would cause the demand curve for a product in a perfectly competitive market to shift to the left?

Accepted Answer

A decrease in consumer income.

Answer

Improvement in technology for producing the good.

Answer

Increase in production costs.

Answer

Entry of new firms.

Question 45

In the long run, a perfectly competitive firm will:

Accepted Answer

Earn zero economic profit.

Answer

Exit the market if they are making losses.

Answer

Earn maximum profit.

Answer

Incur losses.

Question 46

Which of the following is a benefit of perfect competition for consumers?

Accepted Answer

Lower prices for goods.

Answer

Maximum producer surplus.

Answer

Limited variety of goods.

Question 47

Which of the following industries is most likely to be considered perfectly competitive?

Accepted Answer

Agriculture (e.g., wheat farming).

Answer

Automobile manufacturing.

Answer

Medical services.

Answer

Telecommunications.

Question 48

How would a technological advancement that reduces production costs affect the supply curve in a perfectly competitive market?

Accepted Answer

Shift the supply curve to the right.

Answer

Shift the supply curve to the left.

Answer

Increase demand and increase equilibrium price.

Question 49

At what output level does a perfectly competitive firm maximize its profit?

Accepted Answer

Where marginal revenue equals marginal cost.

Answer

Where average total cost is minimized.

Answer

Where fixed costs are covered.

Answer

Where total revenue is maximized.