Question

1) If you want to know how an increase in the price of ice cream at the Next Door Ice Cream Shoppe affects the demand for frozen yogurt in your shop, you would compute the:

            (a)        price elasticity of demand

            (b)        income elasticity of demand

            (c)        cross-price elasticity of demand

            (d)       price elasticity of supply

2) In what industry structure is the mutual interdependence of the firms a key characteristic?

            (a)        perfect competition

            (b)        monopolistic competition

            (c)        oligopoly

            (d)       monopoly

3) Antitrust law is legislation passed for the stated purpose of

            (a)        reducing the profits of chain stores

            (b)        promoting U.S. banking practices in foreign countries

            (c)        controlling labor union practices in various states such as New York, California and Texas

            (d)       controlling monopoly power and preserving and promoting competition

Answer 1

1.

(c) cross-price elasticity of demand

Explanation :

Price elasticity of demand is how responsive consumers are to change in price.

Income elasticity of demand is how responsive consumers are to change in income.

Cross price elasticity of demand is how responsive consumers are to change in price of related good.

Price elasticity of supply is how responsive producer are to change in price.

2.

(c) oligopoly

Explanation :

Because there are few firms in the oligopoly market, they can act like monopoly if they form a cartel. Monopoly is single seller so no need to be interdependence. In monopolistically competitive firm and perfect competition there are many firms so it is impossible to interdependence.

3.

(d) controlling monopoly power and preserving and promoting competition

Explanation : this low is paased to protect the consumer interest. Government creates competition to make customers better off.