Economics Homework Nine Answers - Student Six

AddisonDM 11:42, 14 November 2009 (EST)

1.Consumer electronics retailers are an oligopoly. A small handful of stores, mainly Walmart and Bestbuy, dominate this retail sector. It is an oligopoly because there is a high barrier of entry to start up a sizeable retail chain no matter what it sells.

Excellent substance, but work on spelling: "sizable", not "sizeable".

2.Types of markets, price lowest to highest: 1- perfect competition: prices are about as low as possible here, because any price increase will cause a loss in demand due to the other competitors. 2 perfectly contestable markets: here, there is always the threat of a new competitor coming into the business and underselling you. 3- monopolistic competition: moderate competition and number of firms. However, each firm may have a slightly different product, style of service, or some other signature element. 4- oligopoly: small group of firms, perhaps you could say they collectively form a monopoly on their sector. 4- cartel: small group of producers illegally agreeing to inflate prices in unison. Pretty much an oligopoly which consciously makes itself a monopoly. 5- monopoly: only one seller for a product, or one company in a sector, with very little or no competition.

Superb, could use as a model. Note, however, that in perfect competition the prices are as low as possible, not "about". It's "perfect", after all.

3.1: Monopolistic competition. 2: Perfect competition. 3: Monopoly (or possibly a single firm under the conditions of perfectly contestable markets.)

Excellent.

5.Simply the Law of Demand. Even a monopoly selling an inelastic good will eventually see its revenue decrease if it indiscriminately raises prices. Nothing is so necessary that people will not eventually cut back on it.

Right.

Honors

6. 75, 75.

Nope, and an explanation (also requested) is missing. (Minus 2). CORRECTED: your (75,75) is correct after all, based on a mistake in the ordering of the numbers in the pairs. One point restored to your grade.

7.Monopolies should be regulated because they impede the free market. To make an odd analogy, imagine the fishing holes cut through ice that are used to catch fish in the Arctic sometimes. When a monopoly forms, it is like ice covering up all but one of the fishing holes. When a monopoly forms, the “ice” should be broken up to provide people with more “fishing holes.”

OK, but doesn't address the frequently awful effect of regulations.

8.The question states “does the deadweight loss equal the consumer surplus?” No, it doesn’t: deadweight loss reduces but may not entirely eliminate consumer surplus. However, the deadweight loss is almost the exact opposite of the consumer surplus. With the deadweight loss, consumers may be forced to spend more than they would like to on something, because the monopoly is the only provider of it. With the consumer surplus, the consumer gets to pay less than he is willing.

Excellent answer. Note also that deadweight loss includes the lost producer surplus.

69/70. Excellent work on difficult questions.--Andy Schlafly 20:51, 15 November 2009 (EST)