Perfect Competition
If a firm operating in a perfectly competitive market anticipates the price elasticity of demand for its product to increase substantially over time, which strategy would best allow the firm to maintain total revenue?
Increase production and decrease price to attract buyers from competitors
What policy should a central bank implement to control hyperinflation without severely constraining long-term economic growth?
Tighten monetary policy moderately while implementing structural reforms that improve productivity
In a market with negative externalities, how might government intervention through taxation unintentionally impact low-income consumers?
It may disproportionately burden them financially due to their less elastic demand for essential goods.
During an unexpected supply shock that raises costs for producers, which policy action could potentially minimize negative impacts on both prices and outputs?
A targeted subsidy on essential inputs combined with a cautious loosening of monetary policy aimed at liquidity support rather than demand boost.
What could be one effect if a large fast food corporation successfully introduces fully automated service technology across all its outlets?
Labor demand falls potentially lowering wages and employment levels within the fast food industry
How does imposing a subsidy on the production of a good affect consumer welfare and market efficiency in the long run?
It can lead to overproduction and misallocation of resources while temporarily increasing consumer surplus
If a country is facing high inflation and unemployment simultaneously, which policy combination could be most effective in addressing both issues without exacerbating either?
Expansionary fiscal policy coupled with contractionary monetary policy.
If the government removes a subsidy on a product which is causing negative externalities, how would this likely affect the socially efficient level of production.
It would decrease as the true cost of production is now reflected
To counteract a recession without increasing the long-term national debt, what alternative mix of policies should a government consider?
Implementing supply-side policies while maintaining a balanced budget.
How does the existence of a natural monopoly affect the allocation of resources in comparison to perfect competition
It leads to underproduction relative to the socially optimal level causing a deadweightloss
What could happen if enhanced technology suddenly lowers production cost for all firms operating within a competitive market?
Demand remains stable but an increase in supply leads to a new equilibrium with lower prices and greater quantity
If the Federal Reserve aims to simultaneously curb inflation and avoid recession in a period of stagflation, which policy combination is most appropriate?
Increase interest rates and decrease government spending
Which outcome is most likely when a subsidy is provided for good X which has significant negative externalities?
The subsidy leads to overconsumption of good X beyond its socially optimal level exacerbating inefficiency.
Considering a short-run Phillips curve scenario, what combination of policies would most effectively lower an initially high unemployment rate without causing significant long-run inflationary pressure?
Use expansionary fiscal policy paired with forward guidance from the central bank about gradual monetary tightening in the future.
In response to an unforeseen surge in input costs making current output levels unsustainable for maintaining normal profit, how might a monopolist adapt its strategy most effectively?
Decreasing output quantity slightly below previous levels leading upt higher market prices via reduced supply while exploring cost-reducing technological advancements
If a firm operating in a perfectly competitive market anticipates an inelastic demand for its product in the short run, which strategy would increase total revenue without necessarily altering production costs significantly?
Raise price slightly to maximise total revenue from each unit sold
How might a central bank use forward guidance to combat deflation in the context of already low short-term nominal interest rates?
Signal commitment to keeping interest rates low for an extended period to boost expectations of future inflation
Which outcome is likely when a subsidy is provided for merit goods that are also normal goods with positive externalities?
Subsidies may reduce inequity by allowing greater consumption among lower-income households while enhancing positive externalities society-wide.
If the natural rate of unemployment is 5% but the current unemployment rate is at 7%, which policy would effectively move the economy back to its long-run equilibrium without causing inflation?
Increase government spending to boost demand, shifting aggregate demand rightward.
Given high fixed costs and low marginal costs characteristic of natural monopolies, what risk management strategy should be employed when facing potential deregulation aimed at increasing competition.
Lobby for regulatory policies favoring economies-of-scale benefits inherent within natural monopolies while preparing efficient pricing strategies
If a firm in a perfectly competitive market anticipates an inelastic supply for its product but expects the demand to become more elastic due to upcoming technological advancements, what strategy could maximize its revenue before the change occurs?
Increase production to capitalize on current prices while preparing for cost reduction strategies.
When a small open economy attempts to set its own independent expansionary monetary policy under perfect capital mobility, what unintended effect might negate its intended impact?
Capital flight leading to depreciation of local currency potentially offsetting stimulative effects via higher import costs hindering domestic aggregate demand growth.
If lighthouses were privately owned without government intervention, what problem could arise due to their unique nature as both excludable and non-excludable goods?
Difficulty in excluding beneficiaries may lead to underproduction due to free-riding.
If the government implements an expansionary fiscal policy during a recession, which automatic stabilizer is likely to counteract this policy by increasing as the economy improves?
Unemployment insurance payments will decrease.
How can a subsidy provided exclusively for one firm within an oligopolistic industry potentially impact economic welfare?
It could create unfair advantage leading other firms toward non-price competition which may distort resource allocation