What are the determinants of price elasticity of demand?
What will be an ideal response?
There are three important determinants of the price elasticity of demand. These are:
a) Closeness of substitutes: As the number of substitutes grows, the price elasticity of demand increases.
b) Budget share spent on the good: As a consumer spends more of his budget on a particular good, the good's price elasticity of demand increases.
c) Available time to adjust: The price elasticity of demand is lower for a good in the short run in comparison to the long run.
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Which of the following is true for both perfect and monopolistic competition?
A) Firms produce a differentiated product. B) Firms face a downward sloping demand curve. C) Firms produce a homogeneous product. D) There is freedom of entry and exit in the long run.
The practice of a group of firms negotiating a uniform price and fixing agreed-upon market share in order to limit competition is
a. legal in all states but illegal in Washington, D.C. b. called conglomerate behavior c. seldom successful because entry into the industry cannot be denied d. called collusion e. less profitable for each firm than maximizing profit individually