Question

1. Select two industries/markets that you consider to be oligopoly. Describe the features of these industries that affect their pricing and output decisions.

2. Identify two demand shifters and two supply shifters in the market for teachers. For each factor, identify the direction of the demand or supply shift and the potential impact on equilibrium wages.

Answer 1

1) Oligopoly features can be seen in the following markets:

• Crude oil
• Telecom

In crude oil, the production is done by a few countries. They have colluded, and an international cartel is formed. They decide on how much crude to supply globally, and this affects the prices. It is very difficult for new countries to enter this market. If the collusion breaks, prices start falling.

In telecom, in almost every country, the market is dominated by 3 to 4 large firms. All the smaller firms get merged into the larger firms. These large firms decide the tariffs, and each firm will offer basically the same tariff plans. Consumers have no choice, but to select from these providers. Tariff hikes are also synchronized.

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2) In the market for teachers, demand comes from the educational sector, and supply comes from eligible members of households.

Demand shifters:

• A new law requires fewer students per teacher -- i.e., the student-teacher ratio has to be brought down. This will require hiring of more teachers. Demand curve will shift to the right, and wage rates will rise.
• The government decides to expand the number of schools in the country by 30%. This will require hiring of more teachers. Demand curve will shift to the right, and wage rates will rise.

Supply shifters

• The government passes a law in favor of a minimum wage and free housing for teachers. Now more people would like to become teachers. Supply curve will shift to the right, and wage rates will fall.
• There is increasing uncertainty about a teaching job due to the shift to online education and the pandemic. Now people move to other professions. Supply curve will shift to the left, and wage rates will rise.