Perfect Competition Test - 2

The primary objective of imposing a price floor is to ensure that producers receive a minimum price for their goods or services, thereby supporting their income and livelihoods. This is typically done in markets where producers face economic challenges or where policymakers aim to achieve certain social or political goals.

Excess supply will cause the price to fall, and as price falls producers are willing to supply less of the good, thereby decreasing output.

When the price is below the equilibrium price, it signals that the quantity demanded exceeds the quantity supplied, leading to excess demand in the market.

Market equilibrium is determined when the quantity demanded of a commodity becomes equal to the quantity supplied.

"There are numerous buyers and sellers in the market, with no individual seller having significant market power to influence prices."

This option accurately describes why sellers in perfect competition are price takers. In perfect competition, the large number of sellers and buyers ensures that no single seller has enough market power to affect the market price. Therefore, sellers must accept the prevailing market price rather than setting their prices.

An increase in demand leads to a rightward shift of the demand curve. This means that at every price level, consumers are willing to purchase a greater quantity of the good or service. As a result, the demand curve shifts to the right to reflect this increase in demand.

The capital that is consumed by an economy or a firm in the production process is known as Depreciation. In economics, depreciation is the gradual decrease in the economic value of the capital stock of a firm, nation or other entity, either through physical depreciation, obsolescence or changes in the demand for the services of the capital in question.

In a situation of excess demand, buyers are unable to purchase as much of a good or service as they desire at the prevailing market price because the quantity demanded exceeds the quantity supplied. To obtain the product they desire, buyers may be willing to pay higher prices, as they are motivated to meet their demands despite the scarcity of the product. Hence, buyers are ready to pay higher prices to fulfill their needs or demands. 

When there is an increase in the cost of raw materials used in the production of a product, it becomes more expensive for producers to manufacture the product. As a result, the profitability of producing the product decreases, leading to a decrease in the quantity supplied at each price level. This causes the supply curve to shift to the left.

Firms in a perfectly competitive market can only make profits or losses in the short run because there is an infinite number of firms producing infinite homogeneous products.