Economic Policy - General Equilibrium, Monopoly, And Oligopoly
Take our quiz to help you learn about economic policy! Read chapters 12 to 15 of Case, Fair, and Oster's 'Principlies of Economics' and answer the following questions. The aim of this quiz is to help EC1040 students with their economic policy revision for the JF summer exam. There is a one hour time limit and 25-30 questions. You will not be able to go back and review your answers after each question, so make sure and check your answer while you're answering it!When you get your results, explanations for each answer will be given to help you to improve Read moreyour score. Best of luck!
- 1.
Monopoly occurs when there is a single in the market of a certain good?
- A.
Household
- B.
Buyer
- C.
Producer
- D.
Consumer
- E.
Industry
Correct Answer
C. ProducerExplanation
A monopoly occurs when one firm dominates the market of a certain good or service, due to barriers to entry of other firms.Rate this question:
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- 2.
Bob and Susie are sick of the bad service on Ryanair and hate the high prices of Aerlingus. They want to start their own airline- "Come fly with Bob and Susie"! What are their barriers to entering the market?
- A.
Patent
- B.
Sole ownership of necessary resources
- C.
Start-up costs are too high
Correct Answer
C. Start-up costs are too highExplanation
If Bob and Susie try to start up an airline, they will have to buy numerous costly inputs such as airplanes, staff and space in airports, etc. This will mean that they will have to charge incredibly high prices in comparison to Ryanair and Aerlingus, meaning that it will be very difficult for them to sell any seats.Rate this question:
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- 3.
Jill buys a video phone with her Christmas Bonus. She plans to talk to all her friends with her new phone. She then realises that none of her friends have video phones. What is this an example of?
- A.
Network Externalities
- B.
Price discrimination
- C.
Barrier to entry
- D.
Ownership of a scarce factor of production
Correct Answer
A. Network ExternalitiesExplanation
This scenario is an example of network externalities. Network externalities occur when the value of a product or service increases as more people use it. In this case, Jill's video phone becomes less valuable because none of her friends have video phones, limiting her ability to communicate with them. The value of a video phone is dependent on the network of other users, making it an example of network externalities.Rate this question:
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- 4.
The Big Mac is known as the symbol of American capitalism and 17 are sold every second. To which market structure does McDonalds belong?
- A.
Monopoly
- B.
Oligopoly
- C.
Perfect Competition
Correct Answer
B. OligopolyExplanation
McDonald's belongs to the market structure of oligopoly. This is because the fast-food industry is dominated by a few major players, including McDonald's, Burger King, and Wendy's. These companies have a significant market share and have the ability to influence prices and competition. The fact that McDonald's is a well-known symbol of American capitalism and sells a large number of Big Macs every second further supports its position in an oligopolistic market structure.Rate this question:
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- 5.
The relative profitability of an industry is measured using a model developed by Michael Porter. Name this model.
- A.
The three forces model
- B.
The six forces model
- C.
The four forces model
- D.
The five forces model
Correct Answer
D. The five forces modelExplanation
The correct answer is the five forces model. This model, developed by Michael Porter, is used to analyze the competitive environment of an industry. It considers five forces that shape the industry's profitability: the threat of new entrants, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitute products or services, and the intensity of competitive rivalry. By assessing these forces, businesses can understand the attractiveness and profitability of an industry, and develop strategies to gain a competitive advantage.Rate this question:
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- 6.
The average price of mobile phones suddenly drops by €30. Which of these answers could not be true?
- A.
There was a major technological advance
- B.
The supply curve for the mobile phone industry would shift to the right
- C.
Demand for household phones would increase
- D.
Demand for mobile phones would increase
Correct Answer
C. Demand for household phones would increaseExplanation
Major technological advances would reduce the price of mobile phones significantly. Cheaper phones would mean more demand for them. The supply curve would shift to the right as producers would produce more at a lower cost. Demand for household phones would not increase as people would prefer cheap mobile phones.Rate this question:
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- 7.
Demand for housing in Dublin suddenly rises. Which of these answers is true?
- A.
Unemployment would increase
- B.
Housing prices would fall
- C.
The demand curve for the housing market would shift to the left
Correct Answer
C. The demand curve for the housing market would shift to the leftExplanation
When the demand for housing in Dublin suddenly rises, it means that more people are willing and able to buy houses. This increase in demand will cause the demand curve for the housing market to shift to the right, not to the left. The leftward shift of the demand curve would indicate a decrease in demand, which is not consistent with the given scenario. Therefore, the answer "The demand curve for the housing market would shift to the left" is not true.Rate this question:
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- 8.
In June, Ross decides to sell icecream from a kart on the street. First he goes to Finglas and sell his icecreams for €2 each. The next day Ross decides to go to Donnybrook and he realises he can get a higher price for his product. So he charges €5 per ice cream. What is this an example of?
- A.
Rule of reason
- B.
Monopoly
- C.
Pure genius
- D.
Price discrimination
Correct Answer
D. Price discriminationExplanation
Price discrimination is when a seller sells a certain product for different prices to different customers.Rate this question:
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- 9.
Anne likes U2 and Jim likes B*witched. 98Fm ran a competition with a U2 cd and B*witched CD up for grabs. Both Anne and Jim entered. Anne won the B*witched CD and Jim won the U2 Cd. Afterwards the both swapped to get the one they wanted. What is in effect here?
- A.
Efficient market
- B.
The Industrial Revolution
- C.
Rawlsian justice
- D.
Pareto Efficiency
- E.
Rent-seeking behaviour
Correct Answer
D. Pareto EfficiencyExplanation
If there is no way of improving the situation of one person, without making that of another person worse, the solution found is Pareto Efficient. Because Anne and Jim swapped and both of them benefitted from it without making the other worse off, Pareto Efficiency, or Pareto Optimality, is in effect here.Rate this question:
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- 10.
What is partial equilibrium analysis?
- A.
The condition that exists when some markets in an economy are in simultaneous equilibrium.
- B.
Process of examining the equilibrium conditions in individual markets and for households and firms separately.
- C.
The condition in which the economy is producing what people want at least possible cost.
Correct Answer
B. Process of examining the equilibrium conditions in individual markets and for households and firms separately.Explanation
Partial equilibrium analysis refers to the process of examining the equilibrium conditions in individual markets and for households and firms separately. It involves analyzing the supply and demand dynamics, price determination, and market outcomes in specific sectors or industries, without considering the interconnections and feedback effects from other markets or the overall economy. This approach allows for a more detailed and focused analysis of the factors influencing market equilibrium and helps in understanding the behavior and decision-making of individual economic agents.Rate this question:
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- 11.
The US beer industry is dominated by two producers: Anheuser-Busch and Miller-Coors with a two firm concentration ratio of 80%. Define the term concentration ratio.
- A.
The alcohol content of beer
- B.
The ability of beer drinkers to pay attention
- C.
The share of industry output in sales or employment accounted for by the top firms
Correct Answer
C. The share of industry output in sales or employment accounted for by the top firmsExplanation
The concentration ratio refers to the share of industry output in sales or employment that is accounted for by the top firms. In this case, the concentration ratio of 80% indicates that Anheuser-Busch and Miller-Coors together account for 80% of the industry's output in terms of sales or employment. This suggests that these two firms have a significant level of control and dominance in the US beer industry.Rate this question:
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- 12.
In Economics, what does the term Cartel refer to?
- A.
A method of plotting two variables on one graph
- B.
A five member american pop-rock band from Conyurs Georgia
- C.
A group of firms that gets together and makes joint price and output decisions to maximise joint profits
Correct Answer
C. A group of firms that gets together and makes joint price and output decisions to maximise joint profitsExplanation
Often firms in an oligopoly (secretly) liaise in order to set a joint price for a certain good so that they don't go below that and both maximise their profits.Rate this question:
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- 13.
In economic terms, what does 'horizontal differentiation' mean?
- A.
An object looking different when you're sitting down
- B.
Products differ in ways that make them better for some and worse for others
- C.
A product difference that appears to make it better for everyone
Correct Answer
B. Products differ in ways that make them better for some and worse for othersExplanation
Horizontal differentiation refers to the variation in products or services that makes them more suitable or preferable for certain individuals or groups while being less desirable for others. It implies that different products have distinct features or characteristics that cater to different consumer preferences or needs. This can result in a situation where a particular product may be considered superior by some consumers but not by others, depending on their specific requirements or tastes.Rate this question:
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- 14.
The free market ensures the efficient allocation of resources to firms. True or false?
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The free market, or Adam Smith's concept of an "invisible hand" ensures that scarce resources are allocated among firms efficiently, assuming that factor markets are competitive and open, that all firms pay the same prices for inputs, and that all firms maximise profits.Rate this question:
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- 15.
The Sherman Act of 1980 is a very important act in the history of economics. What did this act deal with?
- A.
The Nutty Professor
- B.
Prohibiting attempted monopolies
- C.
Taking down barriers to entry
- D.
Outlawing price discrimination
Correct Answer
B. Prohibiting attempted monopoliesExplanation
The Sherman Act 1980 was the first US Federal statute to limit cartels and monopolies.Rate this question:
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- 16.
Which of the following is an example of a monopoly?
- A.
Buying a dress on Grafton St.
- B.
Buying a meal on an airplane
- C.
Only newsagents selling naggins of vodka
Correct Answer
B. Buying a meal on an airplaneExplanation
Buying a meal on an airplane is an example of a monopoly because it refers to a situation where there is only one provider of a particular product or service. In this case, the airline has exclusive control over the food and beverage options available on the flight, giving passengers no alternative choices. This lack of competition allows the airline to set prices and control the market without any significant competition from other vendors.Rate this question:
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- 17.
Which of the following is not an example of market failure?
- A.
Externalities
- B.
Monopoly
- C.
Diminishing marginal utility
- D.
Imperfect information
Correct Answer
C. Diminishing marginal utilityExplanation
Market failure occurs when resources are allocated inefficiently. Diminishing marginal utility is the law that as a person increases consumption of a product - while keeping consumption of other products constant - there is a decline in the marginal utility that person derives from consuming each additional unit of that product, and is therefore not an example of market failure.Rate this question:
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- 18.
If all car dealerships in Dublin made an agreement not to a sell a car below €25,000, what would this be an example of?
- A.
Dominant strategy
- B.
Collusion
- C.
Tacit collusion
- D.
Perfect competition
Correct Answer
B. CollusionExplanation
Collusion occurs when price- and quantity-fixing agreements among producers are explicit. Tacit collusion means the agreements are implicit.Rate this question:
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- 19.
Markets in which entry and exit are so easy that the threat of potential entry holds down prices to competitive level are known as....
- A.
Threatening markets
- B.
Entry markets
- C.
Barrier markets
- D.
Contestable markets
Correct Answer
D. Contestable marketsExplanation
Contestable markets refer to markets where there are low barriers to entry and exit, making it easy for new firms to enter and compete with existing firms. In these markets, the threat of potential entry keeps prices competitive as existing firms cannot raise prices without the risk of new entrants entering the market and undercutting them. This concept emphasizes the importance of potential competition in maintaining competitive prices, even if there are only a few actual competitors present in the market.Rate this question:
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- 20.
What does the term duopoly describe?
- A.
A two-firm monopoly
- B.
A board game
- C.
A two-firm oligopoly
- D.
A ten-firm oligopoly
Correct Answer
C. A two-firm oligopolyExplanation
The term "duopoly" refers to a market structure in which there are only two firms that dominate the industry. These two firms have a significant market share and often have a strong influence on pricing and competition within the market. Unlike a monopoly, where there is only one firm controlling the market, a duopoly allows for some level of competition between the two dominant firms. Therefore, the term "duopoly" accurately describes a two-firm oligopoly.Rate this question:
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- 21.
A beautiful mind is a film that tells the story of John Nash, an economics nobel prize winner. What is the name given to his theory which analyses choices made by rival firms to maximise well being and anticipate reactions?
- A.
Nash theory
- B.
Game theory
- C.
Mind theory
- D.
Firm theory
Correct Answer
B. Game theoryExplanation
The correct answer is Game theory. Game theory is the name given to John Nash's theory which analyzes choices made by rival firms to maximize well-being and anticipate reactions. This theory is widely used in economics and other fields to study strategic decision-making and interactions between individuals or organizations. It provides a framework for understanding how individuals or firms make decisions in situations where the outcome depends on the choices of others.Rate this question:
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- 22.
If Michael O'Leary tried to buy all the shares in Aer Lingus, who would not allow it?
- A.
The Competition Authority
- B.
The Federal Trade Commission
- C.
Libo-Cop
- D.
The Monopoly Police
Correct Answer
B. The Federal Trade CommissionExplanation
The Federal Trade Commission was established in 1914 in the US to investigate and regulate unfair methods of competition.Rate this question:
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- 23.
Monopolistic competition among nightclubs in Dublin may be beneficial for students because...
- A.
It means there is less choice
- B.
Bad nightclubs will be forced to close
- C.
It leads to a better choice
Correct Answer
C. It leads to a better choiceExplanation
Monopolistic competition is a market structure with a large number of firms, no barriers to entry, and product differentiation. If the nightclubs in Dublin had this type of market structure there would be many different clubs for students to choose from, allowing them to maximise their utility satisfaction.Rate this question:
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