In monopolistic competition, firms sell a differentiated product. In perfect competition, firms sell an identical product. How do these markets differ as a result?
What will be an ideal response?
Because of this difference, firms in monopolistic competition face a downward sloped demand curve and have price setting power. Firms in perfect competition do not—their demand curves are horizontal. Because of this difference, in the long run, perfectly competitive firms produce at minimum average cost while monopolistically competitive firms have excess capacity.
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When the Fed changes the quantity of money, there is an immediate effect on
A) the inflation rate but not the price level. B) the nominal interest rate. C) real GDP. D) the price level and the inflation rate. E) the price level but not the inflation rate.
Today, the dollar is worth 1.15 euros. Due to changes in economic conditions, people expect that the dollar will be worth 1.20 euros in the next month. This belief
A) increases the demand for dollars. B) decreases the demand for dollars. C) increases the demand for euros. D) increases the value of exports to Europe.