Why can’t an individual firm raise its price by reducing output or lower its price to increase sales volume in a purely competitive market?
What will be an ideal response?
One of the key reasons that an individual firm can’t raise prices or decrease prices to increase sales volume is the fact that firms in a purely competitive market are price takers. This occurs due to the large numbers of firms in the market. As a result, individual firms face perfectly elastic demand. This means that a firm can produce as little or as much as it wants and still receive the same price. Thus, the firm cannot raise prices by restricting output or lower prices to sell a greater level of output.
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The above figure shows the market for anti-freeze. The government imposes the sales tax shown in the figure on sellers. How much tax revenue does the government raise from this tax?
A) $2,000 B) $3,000 C) $4,000 D) $6,000
In traditional Keynesian economics:
a. the aggregate supply curve is vertical. b. the aggregate supply curve is horizontal. c. the aggregate supply curve is upward-sloping. d. the aggregate demand curve is horizontal. e. the aggregate demand curve is vertical.