What are the distinguishing characteristics of monopolistic competitive market structure

| November 24, 2016

1) What are the distinguishing characteristics of monopolistic competitive market structure?

2) Provide some examples of monopolistically competitive firms in Australian market and their market share.

3) Distinguish between short and long run price and output decisions and outcomes of a monopolistic competitive firm. Why do firms in monopolistic competition operate with excess capacity?

4) Discuss the types of oligopoly and give examples of prominent oligopoly industries in Australia.

5) Why are firms in oligopoly interdependent? Why do firms in oligopoly face a temptation to collude? Why is a cartel formed by oligopoly firms likely to break down?

6) Indicate the major reasons for market failure. Distinguish between positive and negative externalities.

7) Distinguish among private goods, public goods, common resources and natural monopoly with two examples each.

8) What is the free-rider problem? Why does the private provision of public good inefficient?

9) What is a merit good? Why does the government take the initiative to provide the merit good?

10) How does the government correct the negative externality both in production and consumption?

11) What would be optimal size of the correction measures of externalities? Market price and output?

12) Using a diagram, compare and contrast the price and output decision of a competitive firm with a monopoly firm.

13) Compare the consumers’ and producers’ benefits provided by a competitive firm with that of a monopolistically competitive firm.

14) Use game theory and prisoners’ dilemma to explain Nash Equilibrium conceptually.

15) Explain main objectives of applying price discrimination by an Oligopoly firm.

16) What are the major ways that a government can correct the externalities? Using a diagram explain the optimal size of the correction measures, market price and output outcome.

17) Consider an economy with the following characteristics:

· The households behave such that the consumption function is C = 40 + 0.9YD

· Planned investment is I = 40

· Government expenditure is G = 60

· The tax function is T = 0.2Y

· Exports of the country are X = 14

· The import function is M = 10 + 0.02Y.

Assume there are no transfer payments and no autonomous taxes.

All variables are in billions of dollars. C is consumption expenditure; YD is disposable income; Y is real GDP; G is government purchases of goods and services; T is taxes; I is planned investment expenditure; X is exports, and M is imports.


g. Algebraically express consumption as a function of real GDP (Y). Derive a savings function from a consumption function with a diagram.

h. Write the aggregate expenditure function. How much is the autonomous expenditure in this economy in billions of dollars?

i. What is the equilibrium level of income of the economy?

j. Define the multiplier. Calculate the size of the multiplier of the economy.

18) What is the difference between real GDP and nominal GDP? What were Australia’s real GDP and nominal GDP in the 2014–15 financial year?

19) Define unemployment. What is the current rate of unemployment in Australia? Discuss the three major categories of unemployment. Explain why there is unemployment at the full employment level of output.

20)Draw an aggregate demand curve showing the relationship between price level and output of an economy. Why does the aggregate demand curve slope downwards?

21)Draw and distinguish between a short run aggregate supply curve and long run aggregate supply curve.

22)Illustrate the economy-wide equilibrium in an AD–AS model when actual output is below the full employment level of output.

23)Distinguish between demand pull and cost push inflation. Give an example for each type of inflation in Australia.

24)Define and distinguish between fiscal and monetary policy. Why are they called demand management policies?

25)What are the major tools of fiscal policy? Assume there is a deflationary gap between real output and the potential output of a country. Using a diagram, show how a tax cut can stimulate the output and employment of the economy to take it close to the full employment level of output.

26)What are the major objectives of monetary policy of Australia? Does Australia have an expansionary or contractionary monetary policy?

27)In an AD–AS model, show Australia’s current employment and output situation. Discuss how the RBA can increase the output and employment level from its current position.

28)Define ‘economic growth’? What is the average annual rate of real GDP growth of Australia over the last decade? Explain the major sources of growth.

29)What is the definition of ‘supply side policy’? What is the key objective of a supply side policy?

30)What are the major ways a country can restrict its international trade? What are main reasons for imposing trade restrictions?

31)Using a diagram, show the loss of economic benefit to a country due to trade restrictions imposed by tariff.

32)Using a diagram, explain how a decrease in the demand for Australia’s iron ore puts downward pressure on the value of Australian dollar.

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