Provide a comparison of the four studied market structures by completing the entries on the following table.
Number of sellers (i.e., Large, few, one)
Type of product
(i.e., Homogeneous, differentiated, partially differentiated, unique)
Entry conditions (i.e., very easy, easy, difficult, very difficult)
Restricted or blocked
Undifferentiated or differentiated
Explain how the market demand curve for a ‘normal’ good will shift (i.e. left, right or no shift) in each of the following cases? What then will happen to the equilibrium price and quantity?
(a) The price of a substitute good falls
(b) The price of a complementary good falls
(c) The price of the good decreases
(d) Tastes shift away from the good
The following diagrams illustrate an industry under oligopoly consisting of 10 equal-sized firms, and a particular firm in that industry. Each of the firms produces an identical product.
(a) Assuming the firms form a cartel, what price will the cartel choose if it wishes to maximise overall profits for the cartel?
(b) What total output must the cartel produce in order to maintain this price?
(c) To what output will an individual firm be restricted if this price is to be maintained? Assume that all firms are permitted to produce the same level of output.
(d) If the other firms stick to this output, how much would an individual firm be tempted to produce if it wished to maximise its own profit at the agreed price?
(e) If it undercut the cartel price, what price and output would maximise its profit (assuming the other members did not retaliate)?
(a) Compare and contrast monopoly and perfect competition market structures in the Long-run.
Monopoly and perfect competetion structures differ in the sense that monopoly ha sonly one seller whereas perfect competetion has a large number of sellers. Monopoly sells a uniques product and the consumer demand is highly inelastic. Wheres in perfect competition they sell undifferentiated products and the punlic demand is highly elastic.
(b) Discuss the advantages and disadvantages of these two markets structures? Would a monopolist increase society’s economic welfare?
Though the monopolist market may help in substantial economic profts in the long and short, the lack of competition may reduce the quality of service provided. It can also lead to the exploitation of the customer as only one seller gets to set the price.
The disadvantage of perfect competition are insufficient profits comared to investments and lack of choice when it comes to the types of goods. But the biggest advantage is the amount of information buyers and sellers have in perfect competition.
(a) Define the Income elasticity of demand?
Income elasticity of demand referes to the degree in change of the quantity of product when the price of the product is changed. High income elasticity implies that when the income of a consumer goes up they will buy a larger quantitiy of that product and inversely when their income is low thye will buy lesser quantity if that particul product. A low income elasticity stands for the opposite, wherein the income of the consumer does not affect the quantity demanded to such a large extent. The income elasticity of demand can calculate by dividing the percentage change in demand by the percentage change in income.
(b) What is a normal and an inferior good?
A normal good is product whose consumption or demand increase when the consumers income increase. And inferior good is a tye of product that has an inerse relation as in if you start earning more than you will no longer want the inferior good as you will want to consume better products or hight quality goods as your income allows yu to fford it now. Normal goods and their demand flows in direct proportion with the consumers income.examples of normal goods can be food staples and clothing. Examples of inferior goods can be cheap alcohol or coarse grain as eventually with the irse in income you will want better quality products.
(c) Define the own-price elasticity of demand.
Own price elasticity of demand refers to the responsiveness of demand to price change. Percentage change in quantity demanded of a good or service divide by the percentage change in price reveals this.the only condition for this is that thenother factors have to remain constant. When the quantity demanded does not change with the change in price, the demand is set to inelastic.
(d) Define the cross-price elasticity of demand.
Cross price elastcitiy of demand in economics referes to the degree of responsivness in demand of a product A when there is a change in price of product B. this can be calculated by taking the percentage change in quantity demanded of one good divided by the price change of anotehr good. For instance the cross elasticity of substitute goods is always positive because the price increase in one good changes the quantity demand of another good.
(a) What is ‘Business Cycle’?
A business cycle is basically an economic cycle that helps private companies and governments to make well informed and better decisions. they are marked by the change in phases with regard to exapansion and contraction of economic activity. One business cylcle ususualy involves peak and falls, downward and upward movement if gross domestic product with regard to it long term growth trend. It is relaint on three factors- supply and demand, the availability of capital and consumer confidence.
(b) What is the definition of: leading indicator, coincident indicator, and lagging indicator? Provide 2 examples of each leading, coincident and lagging indicator
Leading indicators focus on the future movement of the economy while lagging indicators focus on the past movement. This implies that if tehre is a change in the economy there will be a change in the lagging indicators. Amidst this co incident indictaors are indicators that show the current state of economic activity in a particular area. Examples of leading indicators are : financial metrics and customer metrics.
Examples of lagging indictaors are : unemployment rate and corporate profits
Examples of coincident indictaors are : personal income and interest rates.
(c) Define the three ranges of the aggregate supply curve in the AD/AS framework.
In Keynesian range, which is the first range of the aggregate supply curve , the ggregate demand leads to inflation with very little increase in output. In the intermediate range is uopward sloping and in this range, real putput expands and price levls also rise.
At the classical range, the economy is producing at full employment. It is exactky similar to the long run supply curve.
(a) Provide the definition of “Unemployment”.
In economics , unemppyemnet refers to the lack of ability or inabiltiy of citizen to readily obtain a job or work that will help them contribute in a positive manner to the economy. Unemployment refers to the state when an individual is not able to get a job that use stheir abiltiies to create income.
(b) Describe the types of unemployment classification.
There are four basic type sof unemployment and they are voluntary unemploymen i.e when somebody is unemployed by choice, involuntary unemployment is when an individual needs the job for a spurce of income but cannot find anything due to the lck of opportunities frictional unemployment, this refers to the time period when an individual is without work between jobs. Structural unemployment refers to the type of unemployment that shows the lack of jobs provided by the economy.
(c) What is meant by zero unemployment?
Zero unemployment refers to the ratio between number of people actively sekeing jobs an dthe number of jobs that are available on offer.
(d) Is ‘zero unemployment’ desirable? Explain
Zero unemployment is not at all desriable beacsue it means that the economy cannot grw as every one has a job or that there are no jobs left to offer. When the economy goes into recession and unemployment is high, it is cyclical unemployment. Zero unemployment will push up labour costs and the workers will have leverage as they know they cant be replaced. This is not a good thing as it will not help the economy grow. Employers will have to pay more and the cost of prodcution will end up increasing.
(a) Define what are expansionary and contractionary discretionary fiscal policies.
Expansionary fiscal policies try to increase the growth opportunities of an economy. They want to booth the growth to a healthy level. Contractionary fiscal policies are plocicies used to increase or decrease the rate of taxes while trying to contract the economy. It reduces the amount of money available for business to spend.
(b) Define what is ‘automatic stabiliser’ in fiscal policy, and provide 2 examples.
Automatic stabilizers is government policy of taxes and transfer payments that stabilise the economy without needing the explicit action of policy makers. They automatically dampen the fluctuations in the economic cyles of income and employment. Examples are progressive income tax during boom times or transfer payments.
(c) Consider an economy that is operating below the full-employment level of real GDP. What would be the effect of an increase in government spending on aggregate demand and real GDP?
If the central bank buys government securities from the private sector-money markets, other things being equal, what would the effect be on the following?
(a) The economy’s monetary base
(b) Short-term money market interest rates
(c) Aggregate demand, economic activity and inflation
Assume an economy operates in the intermediate range of its aggregate supply curve. For each of the following changes in conditions, state the direction of the effect on: aggregate demand, aggregate supply, price level, real GDP.
(a) An increase in government expenditure in infrastructure
(b) A severe recession occurs in a country which has been a major importer of the nation’s exports.
(c) The federal government reduces business taxes
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