ECON 101 Final Material (UMICH -
Wolfers) Practice Questions and All
Correct Answers 2026 Updated.
market power and what it arises from - Answer extent to which a seller can charge a higher
price without losing many sales to competing businesses. comes from the # of competing firms
and the level of product differentiation
perfect competition - Answer markets in which a) all businesses in the industry sell an
identical good and b) there are many buyers and sellers who are all small relative to the market
under perfect competition, all sellers have ___ market power, so they are all ___-takers -
Answer zero, price
monopoly - Answer only one seller in the market (most market power)
oligopoly - Answer handful of large sellers (strategic battle w main rivals, choices depend on
each other, lots of market power)
product differentiation - Answer efforts by sellers to make their products differ from those of
competitors (elasticity - makes products less of a substitute for each other)
monopolistic competition - Answer many small businesses competing selling differentiated
products (each seller has a "monopoly" on each specific kind but they are also all in competition
with each other)
you will have more market power when you have (more/fewer) competitors - Answer fewer
imperfect competition - Answer some competitors, products differ at least a little (ex:
monopolistic competition, oligopoly, this is much more common than either extreme of market
power)
more market competition leads to ___ pricing strategies - Answer independent: this means
that firms are no longer price takers (P increase = marginal revenue product increase but
Quantity sold decrease) and can charge different people different prices
(more/less) product differentiation leads to (more/less) market power - Answer more, more
(your product is less of a substitute for that of your competitors)
, firm demand curve - Answer Quantity demanded of buyers from an individual firm as Price
changes
more market power leads to a (steeper/flatter) curve while less market power leads to a
(steeper/flatter) curve (in the Firm Demand Curve) - Answer steeper, flatter
how to find the firm demand curve - Answer experiment with price and different groups of
customers over time - survey customers, change price over time and location, different groups
marginal revenue - Answer addition to total revenue from selling one more unit (reflects the
output effect - discount effect)
marginal revenue equation - Answer MR = P - (change in P * Q)
output effect - Answer how much revenue rises for each item sold (price of each extra item
sold)
discount effect - Answer price cut necessary to get more customers to buy your product
(price cut * quantity that gets the price cut)
the discount effect is ___ under perfect competition - Answer zero
As Q increases, the gap between marginal ___ curve and the ___ demand curve
(increases/decreases) - Answer revenue, firm, increases (MRC decreases twice as fast as the
firm DC, but they start at the same point, Q=1)
rational rule for sellers - Answer sell one more item if marginal revenue >= marginal cost
find P+Q when given marginal revenue curve, firm demand curve, and marginal cost (remember
that MC =/= Supply in imperfect competition) - Answer Q = where MRC meets MC, P = point
on DCf immediately above Q
market power leads price to (increase/decrease) and quantity sold to (increase/decrease) which
leads to a socially inefficient outcome but more profits for the business, sometimes even so that
it can stay afloat with inefficient practices (*market failure!*) - Answer increase, decrease
(underproduction problem)
profit margin - Answer avg revenue - avg cost of production (larger in imperfect competition
than it would be under perfect competition)
Wolfers) Practice Questions and All
Correct Answers 2026 Updated.
market power and what it arises from - Answer extent to which a seller can charge a higher
price without losing many sales to competing businesses. comes from the # of competing firms
and the level of product differentiation
perfect competition - Answer markets in which a) all businesses in the industry sell an
identical good and b) there are many buyers and sellers who are all small relative to the market
under perfect competition, all sellers have ___ market power, so they are all ___-takers -
Answer zero, price
monopoly - Answer only one seller in the market (most market power)
oligopoly - Answer handful of large sellers (strategic battle w main rivals, choices depend on
each other, lots of market power)
product differentiation - Answer efforts by sellers to make their products differ from those of
competitors (elasticity - makes products less of a substitute for each other)
monopolistic competition - Answer many small businesses competing selling differentiated
products (each seller has a "monopoly" on each specific kind but they are also all in competition
with each other)
you will have more market power when you have (more/fewer) competitors - Answer fewer
imperfect competition - Answer some competitors, products differ at least a little (ex:
monopolistic competition, oligopoly, this is much more common than either extreme of market
power)
more market competition leads to ___ pricing strategies - Answer independent: this means
that firms are no longer price takers (P increase = marginal revenue product increase but
Quantity sold decrease) and can charge different people different prices
(more/less) product differentiation leads to (more/less) market power - Answer more, more
(your product is less of a substitute for that of your competitors)
, firm demand curve - Answer Quantity demanded of buyers from an individual firm as Price
changes
more market power leads to a (steeper/flatter) curve while less market power leads to a
(steeper/flatter) curve (in the Firm Demand Curve) - Answer steeper, flatter
how to find the firm demand curve - Answer experiment with price and different groups of
customers over time - survey customers, change price over time and location, different groups
marginal revenue - Answer addition to total revenue from selling one more unit (reflects the
output effect - discount effect)
marginal revenue equation - Answer MR = P - (change in P * Q)
output effect - Answer how much revenue rises for each item sold (price of each extra item
sold)
discount effect - Answer price cut necessary to get more customers to buy your product
(price cut * quantity that gets the price cut)
the discount effect is ___ under perfect competition - Answer zero
As Q increases, the gap between marginal ___ curve and the ___ demand curve
(increases/decreases) - Answer revenue, firm, increases (MRC decreases twice as fast as the
firm DC, but they start at the same point, Q=1)
rational rule for sellers - Answer sell one more item if marginal revenue >= marginal cost
find P+Q when given marginal revenue curve, firm demand curve, and marginal cost (remember
that MC =/= Supply in imperfect competition) - Answer Q = where MRC meets MC, P = point
on DCf immediately above Q
market power leads price to (increase/decrease) and quantity sold to (increase/decrease) which
leads to a socially inefficient outcome but more profits for the business, sometimes even so that
it can stay afloat with inefficient practices (*market failure!*) - Answer increase, decrease
(underproduction problem)
profit margin - Answer avg revenue - avg cost of production (larger in imperfect competition
than it would be under perfect competition)
