Question

Answer True or False to the following questions:

1. An oligopolist who sets the price for the industry is a price leader.

2. Command economies are able to achieve greater allocative efficiency than market economies.

3. Unlimited liability is a distinct advantage of the proprietorship.

4. Game theory is not useful for analyzing perfectly competitive markets.

5. The “invisible hand” refers to the control that government must exercise over a market economy.

Answer 1

1. True.

An oligopolist who sets the price for the industry is a price leader. It takes place when there is only one dominant organization in the industry.

2. True

Since in case of command economies, there is a centrally controlled government which owns and controls the factors of production. Hence, those economies can able to streamline production and hence efficiency can be greater.

3. False

Unlimited liability is a disadvantage of proprietorship. They might not be able to raise adequate funds and have to source funds through other means. Also they are responsible for all the debts of business.

4. False

Game theory can be used as an important tool to study the competitiveness of business and markets. It is used for decision making by utilizing the prediction factor of price competitiveness and product releases among competing entities.

5. False

An invisible hand means that even without a regulatory intervention, free markets will determine an equilibrium in demand and supply of goods. It is put forward by Adam Smith and he argues that government intervention is not necessary for the smooth functioning.