Does a real-world market have to meet all the assumptions of the theory of perfect competition before it is considered a perfectly competitive market?
A) No, probably no real-world market meets all the assumptions of the theory of perfect competition. All that is necessary is that a real-world market behave as if it satisfies all the assumptions.
B) Yes, if a real-world market does not meet the assumptions, then it cannot be considered a perfectly competitive market.
C) Yes, unless it is a new market such as the computer market. New markets are not held to the same assumptions as old, more established markets.
D) No, but it does have to meet the assumption of producing and selling a homogeneous product. It does not have to fully meet the other assumptions.
Ans: A) No, probably no real-world market meets all the assumptions of the theory of perfect competition. All that is necessary is that a real-world market behave as if it satisfies all the assumptions.
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If 1 bottle of wine costs 4 loaves of bread in England, then 1 loaf of bread must cost 1/4 bottle of wine. For England to specialize in bread production, England must be a more efficient bread producer than Portugal, which means that England's cost of producing bread must be less than Portugal's cost. Thus if producing 1 loaf of bread in Portugal costs more than 1/4 bottle of wine (or, equivalently, if producing 1 bottle of wine in Portugal costs less than 4 loaves of bread), then England will specialize in bread production and Portugal will specialize in wine production.
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The Lorenz curve shows what portion of total money income is accounted for by
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