Microeconomics Oligopoly and Pricing Quiz

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Questions and Answers

What happens to the demand for a normal good when consumer income increases?

It decreases

It increases (correct)

It remains the same

It fluctuates

Which of the following pairs are considered substitute goods?

Pen and ink

Tea and sugar

Tea and coffee (correct)

CD and ink

What is the effect of a rise in income on the demand for an inferior good?

It has no effect

It stabilizes demand

It decreases demand (correct)

It increases demand

Which of the following best describes complementary goods?

Goods consumed together Signup and view all the answers

How do tastes and preferences impact the demand for a product?

They directly influence the level of demand Signup and view all the answers

What typically motivates consumers to buy more of a product ahead of a price increase?

Expectation of price change Signup and view all the answers

Which of the following is NOT a characteristic of substitute goods?

They are used together Signup and view all the answers

If consumer income falls, how does it affect the demand for normal goods?

Demand decreases Signup and view all the answers

What does a budget line represent?

All possible combinations of two goods a consumer can buy within their budget Signup and view all the answers

How does a budget line shift when the income of the consumer decreases?

It shifts to the left Signup and view all the answers

What is the effect on the budget line if the price of Good-X falls?

The budget line shifts right on the x-axis Signup and view all the answers

How is the consumer's equilibrium defined?

A situation where a consumer achieves maximum satisfaction without changing their expenditure plan Signup and view all the answers

What characterizes a budget set?

It consists of all bundles of two goods that a consumer can purchase based on their budget. Signup and view all the answers

What happens to the budget line if the price of Good-Y increases?

It shifts to the left on the y-axis Signup and view all the answers

In the equation of the budget set, what does the variable 'M' represent?

The money income of the consumer Signup and view all the answers

When the price of Good-X increases, what effect does this have on the budget line?

It shifts left on the x-axis Signup and view all the answers

What market structure is characterized by a small number of firms that dominate the market?

Oligopoly Signup and view all the answers

In a duopoly, how many firms are involved in the market?

Two Signup and view all the answers

What pricing strategy involves setting low prices to eliminate competition?

Predatory Pricing Signup and view all the answers

Which of the following best describes Walras' Law?

Overall market equilibrium implies that excess demand in one market necessitates excess supply in another Signup and view all the answers

The Kaldor-Hicks criteria focuses on which aspect of welfare?

Maximizing total welfare without considering compensation Signup and view all the answers

What does the term 'asymmetric information' refer to?

Unequal information distribution between parties Signup and view all the answers

Which principle assesses the potential for improving welfare when redistributing payoffs?

Compensation Principle Signup and view all the answers

Which of the following markets describes the interaction of product and factor markets?

General Equilibrium Signup and view all the answers

What is an essential characteristic of a bilateral monopoly?

One buyer and one seller Signup and view all the answers

Which concept is used to describe a state where no individual can be made better off without making someone else worse off?

Pareto Optimality Signup and view all the answers

What is the Veblen Effect?

The idea that utility is measured solely by the price of a commodity. Signup and view all the answers

Which statement correctly describes Giffen goods?

They are inferior goods where demand rises as prices rise. Signup and view all the answers

What typically leads to an increase in demand for a commodity in the presence of expected scarcity?

Anticipation of future shortages. Signup and view all the answers

Which of the following factors can cause a shift in the demand curve?

Alterations in consumer preferences. Signup and view all the answers

How do necessities affect demand when prices rise?

Demand remains constant regardless of price changes. Signup and view all the answers

What is a direct result of a change in expectations regarding future prices?

Current demand may increase even if prices are rising. Signup and view all the answers

What happens to the demand curve when income levels increase?

It shifts to the right for normal goods. Signup and view all the answers

Which aspect does NOT typically influence shifts in demand?

Production technology. Signup and view all the answers

What does the substitution effect focus on regarding a consumer's purchasing behavior?

Change in the quantity purchased due to price changes Signup and view all the answers

What does the Income Consumption Curve (ICC) illustrate?

Changes in consumer equilibrium with varying money income Signup and view all the answers

Which statement accurately describes the Engel Curve?

It shows commodity purchases at varying income levels. Signup and view all the answers

The Price Consumption Curve (PCC) is defined by which of the following conditions?

Price changes for only one commodity with other factors constant Signup and view all the answers

In the context of microeconomics, what does holding 'real income' constant while exploring substitution effects signify?

Consumer choices are solely impacted by price fluctuations. Signup and view all the answers

What is a correct interpretation of the changes visible in the ICC?

It helps demonstrate a consumer's capacity to change equilibrium due to income fluctuation. Signup and view all the answers

When analyzing consumer behavior, what is the primary utility of the Engel curve?

To depict relationships between income and consumption of goods Signup and view all the answers

Which factor does NOT remain constant while determining the Price Consumption Curve (PCC)?

Income level of consumers Signup and view all the answers

Study Notes

Microeconomics

Oligopoly Market is a market structure where there are a few firms that dominate the market.
Duopoly is a specific type of oligopoly where there are only two firms.
Factor Pricing is the study of how the prices of factors of production, such as labor and capital, are determined.
Wage Determination in a Competitive Labor Market is influenced by supply and demand forces.
Bilateral Monopoly occurs when there is a single buyer and a single seller in a market.
Predatory pricing is a strategy used by firms to gain market share by temporarily selling products below cost to drive out competitors.
General Equilibrium is a situation where all markets in an economy are in equilibrium simultaneously.
Walras' Law states that in a general equilibrium model, the sum of excess demands across all markets equals the sum of excess supplies.
Welfare Economics is the study of the relationship between the allocation of resources and social welfare.
Product Market is where goods and services are bought and sold.
Factor Market is where factors of production, like labor and capital, are bought and sold.
Efficiency Criterion: Pareto Optimality is achieved when it is impossible to make one person better off without making someone else worse off.
Compensation Principle suggests that if a change in resource allocation makes some individuals better off and others worse off, it is considered a welfare improvement if the winners can compensate the losers.
Kaldor-Hicks Welfare Criterion states that a change in resource allocation is a welfare improvement if the gainers from the change could compensate the losers and still remain better off.
Scitovsky Double Criterion emphasizes that a welfare improvement must be Pareto optimal.
Bergson Criterion uses a social welfare function that reflects society's preferences to determine welfare improvements.
Little Criterion focuses on the impact of trade on individual income in determining welfare improvements.
Social Welfare Function represents how society values different allocations of resources, reflecting collective preferences.
Asymmetric information is when one party in a transaction has more information than the other.
Marginal Rate of Substitution (MRSxy) measures the rate at which a consumer is willing to trade one good (X) for another good (Y) while maintaining the same level of utility. It is calculated: (No. of units sacrificed of good-x / No. of units gained of good-y)
Budget Line shows all the possible combinations of two goods that a consumer can purchase given their income and the prices of the goods.
Budget Set is the set of all affordable bundles of goods given a consumer's income and market prices. The equation for a budget set is: PxQx + PyQy <= M, where (Px and Py) are the prices, (Qx and Qy) are the quantities, and (M) is the income.
Shifts in the Budget Line occur when the consumer's income, price of good-X, or price of good-Y changes.
Consumer's Equilibrium occurs when the consumer achieves maximum satisfaction given their income and market prices.
Related Goods can be substitutes or complements.
Substitute Goods can be used in place of each other to satisfy a given want, for example, tea and coffee.
Complementary Goods are used together to satisfy a want, for example, tea and sugar.
Normal Goods see their demand increase when income increases.
Inferior Goods see their demand decrease when income increases.
Tastes and Preferences play a significant role in shaping consumer demand.
Expectation of Price Change can lead to changes in demand for a good, like increasing demand if a price increase is expected.
Exceptions to the Law of Demand include Veblen goods, Giffen goods, fear of shortage, and necessities.
Veblen goods are goods whose demand increases as their price increases due to the perceived prestige associated with higher prices, like diamonds.
Giffen goods are a special type of inferior good where the income effect outweighs the substitution effect, leading to a rise in demand as the price increases.
Fear of Shortage can cause a surge in demand for a good even if the price rises.
Necessities are essential goods with relatively stable demand regardless of price changes.
Movement along a Demand Curve occurs due to a change in the price of the good.
Shift in the Demand Curve occurs when factors other than price change, such as income, tastes, or prices of related goods.
Substitution Effect measures the change in the quantity demanded of a good due to a change in its relative price, keeping real income and the level of satisfaction constant.
Income Consumption Curve (ICC) shows the combinations of goods that a consumer chooses at different income levels, keeping the prices constant.
Engel Curve shows the relationship between the quantity demanded of a good and income.
Price Consumption Curve (PCC) shows the combinations of goods that a consumer chooses at different prices of one good, keeping other factors constant.

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Description

Test your understanding of microeconomic concepts related to oligopoly markets and factor pricing. This quiz covers topics such as wage determination, bilateral monopoly, and general equilibrium. Challenge yourself with questions on predatory pricing and welfare economics as well.