Section+Two+Questions+(Microeconomics)

Joining this wiki and contributing: If you want to provide a response to one of the questions below, you'll need to join the wiki and be approved. Click the link above for instructions on how to do so.

__﻿SECTION TWO QUESTIONS (MICROECONOMICS)__
1. What alternative solutions might an economist suggest to the problem of traffic congestion? What are the advantages and disadvantages of each of these solutions?

2. Under what conditions can a firm sell the same product at different prices?

3. European governments have a policy of supporting farm incomes with artificially higher prices for certain foodstuffs. What are the economic effects of this on Europe and the rest of the world?

4. Pollution is sometimes said to be an example of market failure. What is meant by this? How might governments encourage markets to work towards helping solve environ­mental problems?

5. In what circumstances might a government use price controls to influence a market?

6. Is the existence of monopoly in an industry likely to improve or worsen resource allocation?

7. Why are many industries, such as car manufacturing, becoming more oligopolistic? How are the price and output decisions of firms affected by this trend?

8. Economic theory makes certain assumptions about market conditions, in order to study how firms decide on prices and output. Are these assumptions realistic, and do firms always behave in the real world as Economics textbooks predict?

9. Briefly explain what economists mean by the word ‘market’. What kind of problems are markets good at solving, and what are they bad at solving?

10. Why does there appear to be a movement towards oligopoly in certain markets? How does this movement affect the way in which producers make decisions, and how does it affect the welfare of consumers?

11. Evaluate the roles of ‘markets’ and ‘planning’ in an economy today? How are these roles likely to change?

12. What are the assumptions behind the model of a perfectly competitive industry in long-run equilibrium? Why do economists make assumptions of this sort? Are such assump­tions realistic?

13. (a) Why are profits important in a market economy? (b) What problems might a country experience if it tries to use the profit motive to produce everything?

14. (a) What are economies of scale, and why have they become so important in modern economics? (b) In view of this importance, why do so many small enterprises operate successfully in the world today?

15. (a) Explain what externalities are and how they may arise. (b) Discuss whether governments should always involve themselves in markets with substantial externalities.

<span style="font-family: 'Times New Roman',Times,serif;">16. (a) What are the main features of an oligopolistic market? <span style="font-family: 'Times New Roman',Times,serif;">(b) Do oligopolies work in favor of, or against the interest of consumers?

<span style="font-family: 'Times New Roman',Times,serif;">17. (a) What do economists mean by ‘externalities’ or spillover effects? <span style="font-family: 'Times New Roman',Times,serif;">(b) How does an understanding of externalities (spillover effects) assists economists in analyzing environmental problems?

<span style="font-family: 'Times New Roman',Times,serif;">18. (a) What are ‘natural monopolies’ and why are they considered a danger if left unregulated? <span style="font-family: 'Times New Roman',Times,serif;">(b) Is nationalization of natural monopolies the best method of improving their economic efficiency?

<span style="font-family: 'Times New Roman',Times,serif;">19. (a) Distinguish between private costs and benefits and social costs and benefits. (8) <span style="font-family: 'Times New Roman',Times,serif;">(b) Explain how an increase in the number of cars n the roads of a country might lead to a misallocation of resources. (8) <span style="font-family: 'Times New Roman',Times,serif;">(c) Evaluate the ways in which a government might remedy this misallocation. (9)

<span style="font-family: 'Times New Roman',Times,serif;">20. (a) Carefully explain what is it that price, income and cross elasticities of demand are meant to measure. <span style="font-family: 'Times New Roman',Times,serif;">(b) Discuss the practical importance of the concept of price elasticity of demand for <span style="font-family: 'Times New Roman',Times,serif;">(i) business organizations <span style="font-family: 'Times New Roman',Times,serif;">(ii) the government

<span style="font-family: 'Times New Roman',Times,serif;">21. (a) Why do environmental issues cause problems to economists? <span style="font-family: 'Times New Roman',Times,serif;">(b) What solutions might an economist suggest to the problem of overfishing?

<span style="font-family: 'Times New Roman',Times,serif;">22. (a) State the law of demand and distinguish between movements along the demand curve and shifts of the demand curve. (10) <span style="font-family: 'Times New Roman',Times,serif;">(b) Explain, with the help of diagrams, the effect of an increase in the price of petrol is likely to have on <span style="font-family: 'Times New Roman',Times,serif;">(i) The market for cars. <span style="font-family: 'Times New Roman',Times,serif;">(ii) The market for coal. (15)

<span style="font-family: 'Times New Roman',Times,serif;">23. “Monopoly price is higher and output smaller than is socially ideal. The public is a victim.” (J.K. Galbraith, 1974) <span style="font-family: 'Times New Roman',Times,serif;">(a) Explain to economic reasoning behind the statement that “monopoly price is higher and output smaller than is socially ideal.” (12) <span style="font-family: 'Times New Roman',Times,serif;">(b) Do you agree that the public is always the victim of monopoly? Justify your answer. (13)

<span style="font-family: 'Times New Roman',Times,serif;">24. (a) Why are environmental problems considered to be an example of market failure? (10) <span style="font-family: 'Times New Roman',Times,serif;">(b) To what extent can government intervention correct this failure?

<span style="font-family: 'Times New Roman',Times,serif;">25. (a) Under what conditions is price discrimination possible and profitable? (12) <span style="font-family: 'Times New Roman',Times,serif;">(b) Who gains and who loses from price discrimination? Illustrate your answer with examples. (13)

<span style="font-family: 'Times New Roman',Times,serif;">26. (a) Using suitable diagrams, explain why there is likely to be an absence of long run economic profits in perfect competition. (12) <span style="font-family: 'Times New Roman',Times,serif;">(b) To what extent might consumers benefit from increased competition between firms? (13)

<span style="font-family: 'Times New Roman',Times,serif;">27. (a) How does a monopoly maintain supernormal (or abnormal) profit in the long run? (12) <span style="font-family: 'Times New Roman',Times,serif;">(b) Is monopoly always undesirable? (13)

<span style="font-family: 'Times New Roman',Times,serif;">28. Discuss and evaluate the proposition that perfect competition is a more efficient market structure than monopoly.

<span style="font-family: 'Times New Roman',Times,serif;">29. (a) Why is pollution an example of market failure? (10) <span style="font-family: 'Times New Roman',Times,serif;">(b) To what extent can the market system protect the environment? (15)

<span style="font-family: 'Times New Roman',Times,serif;">30. (a) What does an economist mean by efficiency in the operation of a firm? (10) <span style="font-family: 'Times New Roman',Times,serif;">(b) Discuss whether the achievement of efficiency is possible and desirable. (15)

<span style="font-family: 'Times New Roman',Times,serif;">31. (a) What role do prices play in the allocation of resources in free market economics? <span style="font-family: 'Times New Roman',Times,serif;">(b) Evaluate the options available to governments to overcome the failure of markets arising from the production and consumption of demerit goods. Illustrate your answer with the examples where possible.

<span style="font-family: 'Times New Roman',Times,serif;">32. (a) Outline the ways in which monopoly power might arise. <span style="font-family: 'Times New Roman',Times,serif;">(b) Evaluate the extent to which governments should seek to control the growth of monopoly power.

<span style="font-family: 'Times New Roman',Times,serif;">33. ‘National policies and international agreements must be implemented in order to reduce global environmental problems’.

<span style="font-family: 'Times New Roman',Times,serif;">(a) Using the concepts of market failure, explain the statement above from an economist’s point of view. <span style="font-family: 'Times New Roman',Times,serif;">(b) With references to both national policies and international agreements, present and evaluate three solutions that could be recommended by economists.

<span style="font-family: 'Times New Roman',Times,serif;">34. Discuss the economic arguments for and against imposing substantially higher levels of taxation on the sale of alcohol.

<span style="font-family: 'Times New Roman',Times,serif;">35. (a) In what ways do firms operating in different market structures compete? <span style="font-family: 'Times New Roman',Times,serif;">(b) Discuss the view that the more competition there is within each industry, the better.

<span style="font-family: 'Times New Roman',Times,serif;">36. (a) Explain the concepts of maximum and minimum price controls. <span style="font-family: 'Times New Roman',Times,serif;">(b) Evaluate the idea that government intervention in the form of price ceilings and price floors is well intentioned, but often leads to undesirable side effects.

<span style="font-family: 'Times New Roman',Times,serif;">37. (a) Explain how a monopolist may be able to earn supernormal (abnormal) profits in the long run (10 marks) <span style="font-family: 'Times New Roman',Times,serif;">(b) ‘Production by a monopolist will always be against the interests of consumers’. Discuss. (15 marks)

<span style="font-family: 'Times New Roman',Times,serif;">38. (a) Explain how profit is determined in perfect competition (10 marks) <span style="font-family: 'Times New Roman',Times,serif;">(b) ‘Whatever the type of market structure, profit maximization will always be the only goal of firms’. Discuss. (15 marks)

<span style="font-family: 'Times New Roman',Times,serif;">39. (a) Explain the differences between monopolistic competition and oligopoly as market structures (10 marks) <span style="font-family: 'Times New Roman',Times,serif;">(b) Discuss the differences between a collusive and a non-collusive oligopoly (10 marks)

<span style="font-family: 'Times New Roman',Times,serif;">40. (a) Carefully distinguish between merit goods, demerit goods and public goods (10 marks) <span style="font-family: 'Times New Roman',Times,serif;">(b) Evaluate the view that governments should always intervene in markets for such goods as cigarettes and alcohol (15 marks)

<span style="font-family: 'Times New Roman',Times,serif;">41. (a) Explain the necessary conditions for price discrimination to take place (10 marks) <span style="font-family: 'Times New Roman',Times,serif;">(b) Discuss the advantages and disadvantages of price discrimination for consumers and producers (15 marks)

<span style="font-family: 'Times New Roman',Times,serif;">42. (a) Explain how barriers to entry may affect market structure (10 marks) <span style="font-family: 'Times New Roman',Times,serif;">(b) Evaluate the view that monopoly is an undesirable type of market structure (15 marks)

<span style="font-family: 'Times New Roman',Times,serif;">43. (a) Explain the difference between short run equilibrium and long run equilibrium in monopolistic competition (10 marks) <span style="font-family: 'Times New Roman',Times,serif;">(b) ‘Perfect competition is a more desirable market form than monopolistic competition’. Discuss. (15 marks)

<span style="font-family: 'Times New Roman',Times,serif;">43. (a) Explain how a firm operating in an oligopolistic market might attempt to increase its market share (10 marks) <span style="font-family: 'Times New Roman',Times,serif;">(b) Evaluate the view that producers, and not consumers, are the main beneficiaries of oligopolistic market structures

<span style="font-family: 'Times New Roman',Times,serif;">44. (a) Explain the determinants of price elasticity of demand. (10 marks) <span style="font-family: 'Times New Roman',Times,serif;">(b) ‘A deterioration in a country’s terms of trade will always be disadvantageous for the current account balance.’ Evaluate this statement using the concept of price elasticity of demand. (15 marks)

<span style="font-family: 'Times New Roman',Times,serif;">45. (a) Explain the concepts of allocative and productive (technical) efficiency. (10 marks)

<span style="font-family: 'Times New Roman',Times,serif;">(b) ’Monopolies are inefficient and therefore always act against the public interest’. Discuss this statement. (15 marks)

__**<span style="font-family: 'Times New Roman',Times,serif;">Short Essays **__

<span style="font-family: 'Times New Roman',Times,serif;">46. Compare the operation of a cartel with the operation of a competitive market.

<span style="font-family: 'Times New Roman',Times,serif;">47. Outline the factors, which determine the shape of a firm's cost curves, using diagrams and an example.

<span style="font-family: 'Times New Roman',Times,serif;">48. In what circumstances will price discrimination be profitable for a firm?

<span style="font-family: 'Times New Roman',Times,serif;">49. Why might the elasticity of supply for a given product vary over time? Give an example.

<span style="font-family: 'Times New Roman',Times,serif;">50. Explain why economists distinguish between the short-run and long-run when examining how the costs of a firm behave as output increases.

<span style="font-family: 'Times New Roman',Times,serif;">51. Use supply and demand analysis to demonstrate why lines of people often form when prices are controlled.

<span style="font-family: 'Times New Roman',Times,serif;">52. With the aid of a diagram describe how knowledge of supply and demand analysis might help a city council, which is looking for ways of reducing traffic congestion in its city centre.

<span style="font-family: 'Times New Roman',Times,serif;">53. Explain how the law of diminishing returns is relevant to the problem of insufficient food production in certain countries.

<span style="font-family: 'Times New Roman',Times,serif;">54. How might the elasticity of a demand curve affect the shape of its total revenue curve?

<span style="font-family: 'Times New Roman',Times,serif;">55. In the short-run, at what price level will a perfectly competitive firm be prepared to produce?

<span style="font-family: 'Times New Roman',Times,serif;">56. A government is thinking of raising revenue through expenditure taxes. Why would knowledge of price elasticities of demand be useful?

<span style="font-family: 'Times New Roman',Times,serif;">57. Using supply and demand curves, explain how buffer stocks might be used to try to stabilize agricultural prices.

<span style="font-family: 'Times New Roman',Times,serif;">58. Under what circumstances might consumers benefit from the existence of a monopoly?

<span style="font-family: 'Times New Roman',Times,serif;">59. In many developed countries the price of house has risen steadily over the recent years, while more and more people have been buying houses. Use supply and demand analysis to explain why this has happened.

<span style="font-family: 'Times New Roman',Times,serif;">60. Explain the difference between ‘diseconomies of scale’ in the long-run and ‘diminishing returns’ in the short-run.

<span style="font-family: 'Times New Roman',Times,serif;">61. Define the word ‘cartel’ and with an example explain what cartels try to achieve.

<span style="font-family: 'Times New Roman',Times,serif;">62. What would be the main externalities of a decision to build a new international airport near your school or home.

<span style="font-family: 'Times New Roman',Times,serif;">63. Discuss how a monopoly might produce a higher output at a lower price than a perfectly competitive industry.

<span style="font-family: 'Times New Roman',Times,serif;">64. Briefly state what is meant by the productivity of a factor. For what reasons might the productivity of land change over time?

<span style="font-family: 'Times New Roman',Times,serif;">65. A government tries to deal with the problem of homelessness by putting rent controls on housing. Use a supply and demand diagram to explain why other policies will also be necessary.

<span style="font-family: 'Times New Roman',Times,serif;">66. Explain why an oligopolistic firm might not wish to alter its prices.

<span style="font-family: 'Times New Roman',Times,serif;">67. What determines whether the supply of a product is price elastic or price inelastic?

<span style="font-family: 'Times New Roman',Times,serif;">68. A government imposes an indirect tax on the supply of a good with zero price elasticity of demand. Using a diagram, explain why consumers, not producers, could in the end pay this tax.

<span style="font-family: 'Times New Roman',Times,serif;">69. A monopolist decided to maximize total revenue instead of maximizing profit. Predict the effect this will have on price and output. Use a diagram to support your prediction.

<span style="font-family: 'Times New Roman',Times,serif;">70. Why is the concept of ‘scarcity’ important in rich countries as well as poor ones?

<span style="font-family: 'Times New Roman',Times,serif;">71. A business person believes that halving her prices will double her revenue. Explain why this might not happen.

<span style="font-family: 'Times New Roman',Times,serif;">72. A perfectly competitive industry is turned into a monopoly. Predict the effect on price and output.

<span style="font-family: 'Times New Roman',Times,serif;">73. In what circumstances might the existence of a monopoly benefit the public?

<span style="font-family: 'Times New Roman',Times,serif;">74. “In some countries the price of houses rises while the demand for houses rises.” Using supply and demand analysis, explain why this statement does not contradict the law of demand.

<span style="font-family: 'Times New Roman',Times,serif;">75. How might a firm be able to stay in business in the short-run, even if it is not covering all of its costs?

<span style="font-family: 'Times New Roman',Times,serif;">76. What are the distinguishing features of a ‘pure public good’?

<span style="font-family: 'Times New Roman',Times,serif;">77. Show how a supply and demand diagram could be used by an economist to help predict the possible results of introducing a national minimum wage.

<span style="font-family: 'Times New Roman',Times,serif;">78. A survey among 200 passengers on an aircraft reveals that people might have paid 50 different prices. Why has this happened?

<span style="font-family: 'Times New Roman',Times,serif;">79. The choice between military products and the provision of health care illustrates the problem of ‘opportunity cost’. Explain the nature of the problem, using a production possibility frontier to help you.

<span style="font-family: 'Times New Roman',Times,serif;">80. Using a suitable diagram, predict what will happen to efficiency when a competitive industry is monopolised. <span style="display: block; font-family: 'Times New Roman',Times,serif; text-align: right;">]

<span style="font-family: 'Times New Roman',Times,serif;">81. Explain why countries with different economic systems face the same fundamental economic problems.

<span style="font-family: 'Times New Roman',Times,serif;">82. Why might a firm be interested to know the various elasticities of demand for its product?

<span style="font-family: 'Times New Roman',Times,serif;">83. What is meant by market failure? Explain why pollution may cause market failure.

<span style="font-family: 'Times New Roman',Times,serif;">84. Explain why the price elasticities of both demand and supply of primary commodities tend to be relatively low in the short-run.

<span style="font-family: 'Times New Roman',Times,serif;">85. In what ways might a company operating within an oligopolistic market structure attempt to increase its share in the market?

<span style="font-family: 'Times New Roman',Times,serif;">86. Why does the weekly price of a hotel room in a popular holiday resort vary through the year?

<span style="font-family: 'Times New Roman',Times,serif;">87. What are the distinctions between decreasing returns to scale and diminishing marginal returns?

<span style="display: block; font-family: 'Times New Roman',Times,serif; text-align: left;"><span style="font-family: 'Times New Roman',Times,serif;">﻿88. Distinguish between the law of diminishing returns and decreasing returns to scale.

<span style="font-family: 'Times New Roman',Times,serif;">89. Why is pollution an example of market failure? Use a diagram to illustrate your answer.

<span style="font-family: 'Times New Roman',Times,serif;">90. The price of tickets for a major tennis tournament is fixed by the organising body. At the set price, many more people wish to attend the tournament than there are seats available. Draw a diagram to illustrate this situation and use your diagram to examine the likely consequences.

<span style="font-family: 'Times New Roman',Times,serif;">91. A bus company decided to reduce passenger fares. Explain the possible outcomes of this decision using economic concepts.

<span style="font-family: 'Times New Roman',Times,serif;">92. What is a positive externality? Give an example and illustrate your answer with a diagram.

<span style="font-family: 'Times New Roman',Times,serif;">93. Why do some oligopolistic firms engage in non-price rather than price competition?

<span style="font-family: 'Times New Roman',Times,serif;">94. ‘Economics is primarily concerned with the allocation of scarce resources which have alternative uses’. Use a production possibility curve to help you explain this statement.

<span style="font-family: 'Times New Roman',Times,serif;">95. Explain how indirect taxation (Pigovian taxes) may be an appropriate response to the problem of negative externalities.

<span style="font-family: 'Times New Roman',Times,serif;">96. Explain why firms operating in a perfectly competitive market would be able to make only normal profits in the long run.

<span style="font-family: 'Times New Roman',Times,serif;">97. Why do the prices of agricultural goods tend to fluctuate more than those of manufactured goods?

<span style="font-family: 'Times New Roman',Times,serif;">98. A government increases taxation on the sale of tobacco. Using a diagram explain how this might affect consumers and producers of tobacco.

<span style="font-family: 'Times New Roman',Times,serif;">99. Using a diagram explain how allocative and productive efficiency will be achieved in long run equilibrium in perfect competition.

<span style="font-family: 'Times New Roman',Times,serif;">100. ‘As price falls, quantity supplied falls. As supply increases, price falls’. Use supply and demand analysis to explain why these two statements do not contradict each other.

<span style="font-family: 'Times New Roman',Times,serif;">101. Why is the concept of income elasticity of demand likely to be important for a producer of an agricultural product? Use supply and demand analysis in your answer.

<span style="font-family: 'Times New Roman',Times,serif;">102. A firm in perfect competition is producing at the profit maximizing output but making a loss. Using diagrammatic analysis explain how this is possible.

<span style="font-family: 'Times New Roman',Times,serif;">103. Use a diagram to explain why the under provision of merit goods is considered to be an example of market failure.

<span style="font-family: 'Times New Roman',Times,serif;">104. Use a diagram to explain how producers and consumers might benefit from a government subsidy to an industry.

<span style="font-family: 'Times New Roman',Times,serif;">105. With the help of a diagram, explain how a buffer stock scheme is expected to work.

<span style="font-family: 'Times New Roman',Times,serif;">106. A monopolist decides to maximize profits rather than revenue. Using a diagram, explain how price and quantity will change.

<span style="font-family: 'Times New Roman',Times,serif;">107. a. Explain why Veblen goods are an exception to the law of demand

<span style="font-family: 'Times New Roman',Times,serif;">b. To what extent can a firm in monopolistic competition earn supernormal (abnormal) profits?

<span style="font-family: 'Times New Roman',Times,serif;">c. Compare the impact of an indirect tax on the market for cigarettes with the impact of an indirect tax on the market for holidays.

<span style="font-family: 'Times New Roman',Times,serif;">108. Use production possibility curve diagrams to explain the differences between actual output and potential output and between economic growth and economic development.

<span style="font-family: 'Times New Roman',Times,serif;">109. Explain the relationship in the short-run between the marginal costs of a firm and its average total costs.

<span style="font-family: 'Times New Roman',Times,serif;">110. Using appropriate diagrams, explain the difference between the law of diminishing returns and economies of scale.

<span style="font-family: 'Times New Roman',Times,serif;">111. Using demand and supply analysis, explain how resources are allocated through changes in prices in a market economy.

<span style="font-family: 'Times New Roman',Times,serif;">112. Define cross elasticity of demand and using diagrams explain what determines whether cross elasticity is positive or negative.

<span style="font-family: 'Times New Roman',Times,serif;">113. Using appropriate diagrams, discuss whether monopoly is more efficient or less efficient than perfect competition

<span style="font-family: 'Times New Roman',Times,serif;">114. Use a diagram to explain how the incidence (burden) of a tax is shared among producers and consumers when an ad valorem indirect tax is placed on a good which has relatively inelastic demand.

<span style="font-family: 'Times New Roman',Times,serif;">115. A monopoly firm decides to maximize revenue rather than profit. Use a diagram to explain what will happen to price and quantity.

<span style="font-family: 'Times New Roman',Times,serif;">116. ‘Normally, it would be expected that more would be demanded at lower prices as opposed to higher prices, all other things being equal, but this may not always be the case’. Explain this statement.

<span style="font-family: 'Times New Roman',Times,serif;">117. Explain the law of diminishing returns using average and marginal product curves.

<span style="font-family: 'Times New Roman',Times,serif;">118. Explain how scarce factors of production are allocated by the free market.

<span style="font-family: 'Times New Roman',Times,serif;">119. With the help of a diagram, explain when a firm should shut down in the short run.

<span style="font-family: 'Times New Roman',Times,serif;">120. Explain the concept of a natural monopoly

<span style="font-family: 'Times New Roman',Times,serif;">121. Explain what is meant by a production possibility curve and use a production possibility curve diagram to explain the concepts of scarcity, efficiency, choice and opportunity cost.

<span style="font-family: 'Times New Roman',Times,serif;">122. A concert is being held in a stadium with limited seating capacity. The organizers set the ticket prices at a level below the equilibrium price. Using a diagram, explain the possible consequences of their decision.

<span style="font-family: 'Times New Roman',Times,serif;">123. Using at least one diagram, explain the difference between profit maximization and sales revenue maximization as goals of the firm.

<span style="font-family: 'Times New Roman',Times,serif;">124. Explain how the three basic economic questions would be answered in a free market economy and in a centrally-planned economy.

<span style="font-family: 'Times New Roman',Times,serif;">125. Using diagrams, explain the difference between the short-run and long-run profit maximizing positions of a firm in monopolistic competition.

<span style="font-family: 'Times New Roman',Times,serif;">126. Explain how the burning of fossil fuels (e.g. coal) by industries could create a market failure and a threat to sustainable development.

<span style="font-family: 'Times New Roman',Times,serif;">127. Draw a diagram of a perfectly competitive firm in short-run equilibrium. Assume this firm is earning economic profits. Be sure to identify all relevant cost and revenue curves and the area of profit.