In a competitive market with large search costs, many firms, and asymmetric information, why is the monopoly price the only possible single-price equilibrium?
What will be an ideal response?
If firms all sell for some price below the monopoly price, then any one firm can benefit by raising price by less than the cost of searching. All firms have this incentive, which disappears when the monopoly price is set. At the monopoly price, any change in price will lower profit.
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In the consumption function model, the 45-degree line represents where
A) the real disposable income is equal to zero. B) planned real saving is equal to zero. C) planned real consumption spending is equal to zero. D) planned real saving is greater than actual real savings.
If U.S. buyers purchased $500 billion of foreign goods and foreign buyers purchased $400 billion of U.S. goods, the U.S. balance of trade would be:
a. ?$100 billion. b. $100 billion. c. $400 billion. d. none of these.