Economic Assignment: Allocative Efficiency, Monopolistic Competition, Collusion, Monopoly, Taxation, Elasticity

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ECONOMIC ASSIGNMENT

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Table of contents
1. A.............................................................................................................................................3
1. B.............................................................................................................................................3
2. A.............................................................................................................................................4
2. B.............................................................................................................................................4
3. A.............................................................................................................................................4
3 B..............................................................................................................................................5
4..................................................................................................................................................5
5. A.............................................................................................................................................6
5. B.............................................................................................................................................6
5.C..............................................................................................................................................6
5. D.............................................................................................................................................6
Reference....................................................................................................................................8

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1. A
The allocative efficiency is referred to as the economic situation that the markets present
where it is not possible to make someone better off without making someone else worse off.
For the purpose of benchmarking of ideal allocative efficiency perfect competition is used.
The perfectly competitive market reaches the parato optimality, benefits of which accrue to
both the sellers and the buyers of the market. In the equilibrium of perfectly competitive
market, sellers cannot be made better off without making the buyers worse off and vice versa
(Laibson and List, 2015). Therefore, in comparing the allocative efficiencies of the other
market forms, perfectly competitive market is used as a benchmark.
Figure 1: the allocative efficiency of perfect competition
(Source: Goodwin et al. 2015)
1. B
The main objective of the monopolistically competitive firm is to maximise the profit.
Therefore they produce at a point where marginal revenue equals the marginal costs of the
firm. Apart from that the demand curve of the monopolist competition is also downward
sloping which shows that price determined by the market is always more than the cost.
Therefore, the sellers of the monopolistically competitive firms become successful in
extracting all the consumer surplus of the market.