Question

Please answer the following:

A. What will cause an oligopoly to act more like perfect competition?
a. Agreements
b. Differentiated products

c. Cheating

d. Punishment of 'offending' firms

B. What type of unemployment is considered a good thing?
a. Frictional unemployment

b. Seasonal unemployment

c. Cyclical unemployment

d. Structural unemployment

C. If the price of gasoline goes up. and I buy more bicycles, this illustrates:
a. The income effect

b. Law of diminishing marginal utility

c. Decrease in supply

d. The substitution effect

D. Perfectly competitive firms earn zero profits in large part due to:

a. Consumers making cost effective decisions 0

b. Producers selling below ATC

c. Price ceilings keeping prices low

d. Easy entry

Answer 1

A.

Option A is Correct because if there will be more agreements among firms ; more firms could enter the market which will make large number of firms/sellers in the market which will lead to Perfect Competition as In Perfect Competition,there are large number of firms.

Option B is incorrect because In Perfect Competition, there are homogeneous products and not differentiated.

Option C and D are Incorrect because Cheating and Punishment of offending firms will not lead to Perfect Competition as these are not the characteristics of Perfect Competition.

B. Frictional Unemployment is considered good as :

1) It's short term

2) It allows workers to move to the jobs where they can be more productive.

Therefore, Option A is Correct.

Option B is incorrect because in Seasonal Unemployment, people are Unemployed at particular times of year . Areas where Seasonal Unemployment is high, People may start leaving the place to find jobs elsewhere which is not good for economy.

Option C is incorrect because Cyclic Unemployment can lead to rise in the natural rate of Unemployment.

Option D is incorrect because Structural Unemployment leaves long term impacts and can cause the natural rate of Unemployment to increase.

C. Option A is incorrect because If the Increase in Price of gasoline would lead to decrease in its purchases, then It would be Income effect.

Option B is incorrect because law of Diminishing marginal utility is the Decrease in utility due to additional Consumption and here nothing about the utility from the Consumption is mentioned.

Option C is incorrect because Increase in Price will lead to Increase in Supply and not Decrease.

Option D is Correct because Substitution effect is when increase in price of good encourages Consumer to buy some other alternative.

And here too, Due to increase in price of gasoline, I am encouraged to buy other alternative,that is, Bicycles.

D. The reason due to which there is zero Economic profit in Perfect Competition is the free entry of firms in the market.

As if there will be super normal Profit in short run, firms will be attracted towards that and due to free entry in the industry, new firms will enter and the Profit will become normal Profit.

Therefore,the correct answer is Option D.

Other Options are incorrect because the main reason of earning of normal Profit in Perfect Competition is the free entry and exit of firms in Perfect Competition.