Question

QUESTION 1

You operate a hair and beauty salon near Knoxville, and you have lots of competition. Every one of your competitors offers slightly different services, and their prices vary a bit from store to store. What type of market do you operate in?

	A.	Monopoly
	B.	Monopolistic competition
	C.	Oligopoly
	D.	Perfect competition

QUESTION 2

You hold a patent for a special type of paint that may be used on aluminum auto bodies, so you are the only firm that may legally sell this product. What type of market do you operate in?

	A.	Oligopoly
	B.	Monopolistic competition
	C.	Monopoly
	D.	Perfect competition

QUESTION 3

You operate a pizza restaurant, and the price you pay for mozarella cheese increased last week by 10 percent. Does this change affect your supply curve for pizza or the demand curve of your customers?

	A.	Supply
	B.	Demand
	C.	Neither supply or demand

QUESTION 4

Suppose your state government cuts the state income tax rate. You own a retail clothing shop for women, and the clothes are a normal good for most of your customers. Which way does the demand curve for your clothes shift in response to the tax cut?

	A.	Leftward
	B.	Rigthward
	C.	Does not shift

Answer 1

Answer 1) You operate in Monopolistic Competition because there is a large number of firms with group behaviour and free entry and exit which result in competitive characteristics and presence of product differentiation. These all features assembles to monopolistic competition. Hence the answer is option B.

2) You operate in Monopoly because it features assembles to monopoly characteristics - a single seller market such that there are strong entry barriers in which the firm restricts any potential entrant in order to retain its monopoly power. Hence the answer is option C.

3) Since we're a pizza operator and the price of mozzarella cheese has increased it will affect our supply curve. Since price is increasing it the cost of production will increase as a result supply curve will shift towards the left. Hence the answer is option A.

4) Since the tax has been cut disposable income will increase as a result his level of income increases and since the cloth is a normal good, therefore, demand retail clothing will increase. So the demand curve will shift rightward this is because normal goods have a positive relationship with income. Hence the answer is option B.