“In a competitive industry‚ high prices in response to a positive demand shock prevent higher prices.” Explain whether this statement is true‚ false or uncertain in the context of the competitive industry model developed in this chapter. To help your analysis‚ think what would happen if government policymakers precluded suppliers from raising their prices in the wake of a positive demand shock (e. g.‚ local suppliers of lumber were prohibited from raising the price of their products in the wake of a tornado ravaging a community and the resulting need to rebuild homes in the community).
Answer to relevant QuestionsWhat is producer surplus? What is consumer surplus? What is total surplus? Explain how each is shown in a supply and demand graph. “Consumers understandably like lower prices, but they should understand there is a great difference between a lower price produced by a government price ceiling and a lower price that comes about through normal market ...Using a pair of graphs like those in Figure 10.10, illustrate a situation in which the United States would be an exporter of the good in question, and identify the equilibrium.Suppose that the Berkeley City Council takes 10 years to award its first cable television franchise for the sake of ensuring that the price the franchised operator charges is as close to average cost as possible. Explain why ...Provide an example of a firm with a Lerner index value of (a) zero and (b) unity. Why does the Lerner index take on a value between these two extremes? Explain why the Lerner index measures a firm’s monopoly power.
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