When Existing Firms Lose Customers and Profits Due to Entry

question 81

Multiple Choice

When existing firms lose customers and profits due to entry of a new competitor, a

• A)predatory-pricing externality occurs.
• B)consumption externality occurs.
• C)business-stealing externality occurs.
• D)product-variety externality occurs.

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Definitions:

Excess Reserves

Funds that banks hold over and above the required reserve ratio set by the central bank, often earning interest.

Checkable Deposits

Bank accounts from which individuals can deposit and withdraw money using checks, ATM transactions, and electronic payments.

Reserve Requirement

The minimum fraction of customer deposits that each bank must hold as reserves, rather than lending out, as mandated by the central bank.

Simple Money Multiplier

A formula that determines the maximum amount of money that banks can create with a given level of reserves.