There are six questions available. Each question consists of parts (i) and (ii). Please answer only one of the six essay question options, but answer both parts.
QUESTIONS: ANSWER ONLY ONE (BUT BOTH PARTS) OUT OF THE SELECTION
Q1 (i) Is a price in a competitive market system a good mechanism for the allocation of resources? When it is, explain why. If it is not, then document reasons for either inefficient or undesirable outcomes.
(ii) Describe a real-world situation (either in the private sector or public sector) in which a price system either was or could be used to achieve more desirable outcomes for the relevant stakeholders.
Q2 (i) In a competitive market, what are the impacts on price, quantity, and the outcomes for producers and consumers, of a shock to marginal cost that hits one sector of suppliers? (Alternatively: consider a shock to the demand side, or the imposition of a tax or subsidy.) How do these impacts depend upon the size of the affected sector, and the properties of supply and demand?
(ii) Describe a real situation in which a sector of supply or demand was or will be hit by a change to costs, to benefits, or to taxes and subsidies. Using your analysis from (i), evaluate the consequences for the market’s participants.
Q3 (i) How does the number of competitors in an industry influence performance measures such as profit and consumer surplus? What determines the likely number of players? Are we likely to see too much competition or too little?
(ii) Describe a real-world situation in which the intensity of competition (for example, via the number of players) changed. What was the likely explanation for this change? How do your observations connect to your answers to (i)?
Q4 (i) Consider a profit-maximizing supplier with market power (for example, a monopolist selling a single product). Explain how aspects of the product’s design and the market environment may influence the shape of demand, the supplier’s optimal output and price, and the supplier’s profitability.
(ii) Describe an actual product (or products) where a supplier controls the design and marketing. How might your answer to (i) inform the choices of advertising, marketing, and product design?
Q5 (i) Pick one type of price discrimination or market segmentation technique. Explain: (a) how prices should be set; (b) what a supplier needs to know to do this; and (c) what constraints are faced in the use of the technique.
(ii) Describe a real-world example of this price discrimination strategy, and relate it to your three explanations (a), (b), and (c).
Q6 (i) In the context of an appropriate oligopoly theory, explain the channels via which either a cost reduction (a process innovation) or a quality increase (a product innovation) influence a supplier’s profitability.
(ii) Describe a real situation in which a supplier faced (or faces) an innovation opportunity. Explain why the oligopoly theory described in part (i) is suitable for this situation. Evaluate the supplier’s innovation decision.
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