Market Structures: Types, Characteristics, and Welfare Implications

Question 1

Identify the defining traits of perfect competition and explain how these traits promote market efficiency.

Accepted Answer

Numerous buyers and sellers, identical products, unrestricted entry and exit

Answer

Limited buyers, identical products, restricted entry

Answer

Numerous buyers, differentiated products, restricted entry

Answer

Limited sellers, differentiated products, unrestricted entry and exit

Question 2

In an oligopoly, which of the following is true?

Accepted Answer

A few dominant firms control the market

Answer

Products are highly differentiated

Answer

Barriers to entry are minimal

Answer

Firms behave independently

Question 3

Monopolistic competition differs from perfect competition primarily due to:

Accepted Answer

Differentiated products

Answer

Numerous buyers and sellers

Answer

Low barriers to entry

Answer

Price-making power of firms

Question 4

A potential consequence of a monopoly is:

Accepted Answer

Loss of economic efficiency (deadweight loss)

Answer

Increased consumer surplus

Answer

Higher producer surplus

Answer

Enhanced economic growth

Question 5

In a perfectly competitive market, the firm's demand curve is:

Accepted Answer

Perfectly elastic (horizontal)

Answer

Downward sloping

Answer

Upward sloping

Answer

Indeterminate

Question 6

A profit-maximizing monopolist will operate at the point where:

Accepted Answer

Marginal revenue equals marginal cost

Answer

Price equals average total cost

Answer

Total revenue is maximized

Answer

Consumer surplus is maximized

Question 7

Which measure is primarily used by governments to address excessive market power?

Accepted Answer

Antitrust laws

Answer

Price regulations

Answer

Subsidies

Answer

Tax incentives

Question 8

High barriers to entry and exit in a market can lead to:

Accepted Answer

Above-normal profits for firms

Answer

Intense competition among firms

Answer

Reduced prices for consumers

Answer

Increased market efficiency

Question 9

A potential advantage associated with firms having market power is:

Accepted Answer

Promotion of innovation

Answer

Reduced consumer choice

Answer

Increased price volatility

Answer

Lower product quality

Question 10

Which of the following is a concern associated with monopolies in terms of market efficiency?

Accepted Answer

Underproduction and inefficient allocation of resources

Answer

Overproduction and excess demand

Answer

Increased price competition

Answer

Higher consumer satisfaction

Question 11

Which market structure is characterized by few firms with significant market share and differentiated products?

Accepted Answer

Oligopoly

Answer

Perfect competition

Answer

Monopolistic competition

Answer

Monopoly

Question 12

What is the primary purpose of government intervention in market structures?

Accepted Answer

To promote economic efficiency and fairness

Answer

To increase government revenue

Answer

To restrict competition

Answer

To protect specific industries

Question 13

Which of the following is a specific measure used by antitrust laws?

Accepted Answer

Breaking up monopolies

Answer

Imposing price controls

Answer

Providing subsidies to businesses

Answer

Nationalizing industries

Question 14

What is the purpose of the Lerner Index?

Accepted Answer

To measure the market power of a firm

Answer

To determine the level of competition in a market

Answer

To forecast future market trends

Answer

To analyze consumer spending patterns

Question 15

In a perfectly competitive market, firms:

Accepted Answer

Are price takers.

Answer

Possess market power.

Answer

Face substantial barriers to entry.

Answer

Differentiated their products.

Question 16

Which market structure involves a single dominant firm controlling a substantial portion of the market?

Accepted Answer

Monopoly

Answer

Perfect competition

Answer

Oligopoly

Answer

Monopolistic competition

Question 17

Interdependence between firms in an oligopoly stems from:

Accepted Answer

Their decisions influencing the market price.

Answer

Highly differentiated products.

Answer

A large number of firms in the industry.

Answer

Low barriers to entry.

Question 18

Deadweight loss is associated with:

Accepted Answer

Negative welfare implications of market structures.

Answer

Lower prices for consumers.

Answer

Increased consumer choice.

Answer

Greater innovation.

Question 19

Which pricing strategy allows a monopoly firm to charge different prices to different customer groups?

Accepted Answer

Price discrimination

Answer

Loss leadership

Answer

Penetration pricing

Answer

Competitive pricing

Question 20

Which of the following is not a feature of a natural monopoly?

Accepted Answer

Ease of entry

Answer

High fixed costs

Answer

Declining marginal costs

Answer

Economies of scale

Question 21

The Herfindahl-Hirschman Index (HHI) primarily measures the degree of:

Accepted Answer

Market concentration

Answer

Market power

Answer

Consumer welfare

Answer

Government intervention

Question 22

In a perfectly competitive market, firms are:

Accepted Answer

Price takers

Answer

Price makers

Answer

Monopolists

Answer

Oligopolists

Question 23

Monopolistic competition is characterized by:

Accepted Answer

Many firms selling differentiated products

Answer

High barriers to entry

Answer

Perfect information

Answer

Price-setting firms

Question 24

Price discrimination occurs when:

Accepted Answer

Firms charge different prices to different consumers for the same product or service

Answer

Firms charge the same price to all consumers, regardless of their demand

Answer

Firms set prices above the marginal cost of production

Answer

Firms offer discounts for bulk purchases only

Question 25

Which of the following is a primary government policy tool to promote competition?

Accepted Answer

Antitrust laws and regulations

Answer

Subsidies for small businesses

Answer

Price controls and regulations

Answer

Nationalization of key industries

Question 26

In a perfectly elastic demand curve, the:

Accepted Answer

Quantity demanded is highly responsive to even small price changes

Answer

Quantity demanded is completely unresponsive to price changes

Answer

Elasticity is equal to 1

Answer

Elasticity is equal to 0

Question 27

The Lerner Index is primarily used to measure:

Accepted Answer

The degree of market power possessed by a firm

Answer

The price elasticity of demand

Answer

The profitability of a firm

Answer

The efficiency of resource allocation in a market

Question 28

Which market structure features firms with no influence over prices?

Accepted Answer

Perfect competition

Answer

Monopoly

Answer

Oligopoly

Answer

Monopolistic competition

Question 29

Which of the following is not a characteristic of oligopoly?

Accepted Answer

Homogeneous products

Answer

High barriers to entry

Answer

Dominance by a few firms

Answer

Price leadership

Question 30

Which of the following is not considered non-price competition?

Accepted Answer

Price discrimination

Answer

Advertising

Answer

Product differentiation

Answer

Research and development

Question 31

Which of the following accurately describes a perfectly competitive market?

Accepted Answer

Numerous buyers and sellers, homogeneous products, and free entry and exit

Answer

Large number of buyers and sellers, standardized products, and high barriers to entry

Answer

Few sellers, differentiated products, and price-taking firms

Answer

Sole producer, unique product, and high barriers to entry

Question 32

A monopoly is characterized by:

Accepted Answer

Single supplier, market power, and no close substitutes

Answer

Numerous suppliers, standardized products, and perfect knowledge

Answer

Few suppliers, differentiated products, and high barriers to entry

Answer

Sole producer, homogeneous products, and low barriers to entry

Question 33

Which of the following is an advantage of monopolistic competition?

Accepted Answer

Product variety and consumer choice

Answer

Price-taking firms and perfect knowledge

Answer

High barriers to entry and economies of scale

Answer

Natural monopolies and government regulation

Question 34

The Herfindahl-Hirschman Index (HHI) measures:

Accepted Answer

Market concentration in an industry

Answer

Market share of the largest firms

Answer

Elasticity of demand in a market

Answer

Barriers to entry and exit

Question 35

A key distinction between a cartel and an oligopoly is that:

Accepted Answer

Cartels are formed through explicit agreements, while oligopolies are not

Answer

Oligopolies have higher barriers to entry than cartels

Answer

Cartels are more common in regulated industries than oligopolies

Answer

Oligopolies are always legal, while cartels are not

Question 36

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

Accepted Answer

Firms can influence the market price.

Answer

Many buyers and sellers

Answer

No barriers to entry or exit

Answer

Homogeneous products

Question 37

Which of the following is a strategy often used by oligopolists to increase profits?

Accepted Answer

Collusion

Answer

Price discrimination

Answer

Product differentiation

Answer

Advertising

Question 38

In a monopolistically competitive market, firms:

Accepted Answer

Have some control over their prices due to product differentiation.

Answer

Are price-takers

Answer

Face a perfectly elastic demand curve

Question 39

Which of the following is a welfare implication of a monopoly?

Accepted Answer

Higher prices and lower output compared to perfect competition

Answer

Lower prices and higher output compared to perfect competition

Answer

No impact on consumer or producer surplus

Question 40

A firm in a perfectly competitive market:

Accepted Answer

Must accept the prevailing market price for its product.

Answer

Has control over the supply of goods

Answer

Can set its own price above the market price

Question 41

In an oligopoly, the Herfindahl-Hirschman Index (HHI) is used to:

Accepted Answer

Measure the concentration of market power among firms

Answer

Determine the elasticity of demand

Answer

Calculate the profits of firms in the industry

Answer

Predict the behavior of consumers

Question 42

In a perfectly competitive market, the equilibrium price:

Accepted Answer

Is determined by the point where supply and demand curves intersect.

Answer

Maximizes consumer surplus

Answer

Is set by the government

Answer

Minimizes producer surplus

Question 43

Which of the following is NOT a potential benefit of market structures?

Accepted Answer

Increased unemployment

Answer

Lower prices

Answer

Increased consumer choice

Answer

Innovation