What are the types of market power? How do they arise?
What will be an ideal response?
There are two types of market power. They are as follows:
a) Legal market power: Legal market power arises when the government grants exclusive production rights to particular firms, thus creating barriers to entry.
b) Natural market power: Natural market power arises when barriers to entry occur naturally. This can happen when a firm owns or controls a key resource necessary for production or when a firm enjoys economies of scale over the relevant range of output.
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A shadow price is:
(a) the price in the previous period. (b) the price in the next period. (c) the social value of a good or service. (d) the market value of a good or service. (e) none of the above.
Suppose the economy is in long-run equilibrium and the government decreases its expenditures. Which of the following helps explain the logic of why the economy moves back to long-run equilibrium?
a. as people revise their price-level expectations upward, firms and workers strike bargains for higher nominal wages. b. as people revise their price-level expectations upward, firms and workers strike bargains for lower nominal wages. c. as people revise their price-level expectations downward, firms and workers strike bargains for higher nominal wages. d. as people revise their price-level expectations downward, firms and workers strike bargains for lower nominal wages.