Comment on the following: "The problem with models like the Edgeworth Box and the Robinson Crusoe economy is that it is silly to assume competitive behavior when there are so few individuals in the market."
What will be an ideal response?
This is certainly true: Competitive behavior is price taking behavior -- and this price taking assumption is justified when economic agents are small relative to the economy. The criticism in the statement is therefore justified -- except that the purpose of the models is not to say that the competitive assumption is a good assumption to predict behavior in small settings. Rather, the intuitions in the Edgeworth Box (and the Robinson Crusoe economy) apply for large exchange economies (or large economies involving production) -- and in such economies, price taking behavior is in fact reasonable.
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The delivery of first-class mail by the U.S. Postal Service is an example of
A) a monopoly. B) an oligopoly because a few other firms provide delivery of letters and packages. C) perfect competition because consumers have access to other methods of written communication; for example, email and text messaging. D) monopolistic competition, because mail delivery is a differentiated product provided by many firms.
The Phillips curve that Samuelson and Solow fitted to their data was
A) upward sloping. B) downward sloping. C) vertical. D) horizontal.