Micro Economics Assignment - Question & Answer

Added on - 22 Nov 2020

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Micro Economics
Table of ContentsQUESTION 1...................................................................................................................................1A. The way in which single seller within the market can maintain an inefficient allocation ofresources......................................................................................................................................1B. Advantage and disadvantage to single seller...........................................................................2QUESTION 2...................................................................................................................................2A. Market structure which is used to benchmark allocative efficiency.......................................2B. Reason and the way in which monopolistically competitive firms fail to achieve allocativeefficiency......................................................................................................................................3QUESTION 6...................................................................................................................................4A. Mechanisms that are used to control pollution.......................................................................4QUESTION 7...................................................................................................................................6A. Agreeing or not agreeing with the statement..........................................................................6B. Agreeing or disagreeing to the statement................................................................................6QUESTION 8...................................................................................................................................7A...................................................................................................................................................7B...................................................................................................................................................7C...................................................................................................................................................8D...................................................................................................................................................8E...................................................................................................................................................8F...................................................................................................................................................8G...................................................................................................................................................8H...................................................................................................................................................8I....................................................................................................................................................8REFERENCES................................................................................................................................9
QUESTION 1A. The way in which single seller within the market can maintain an inefficient allocation ofresourcesWhen there is only one seller in the market then it is known as monopolistic in which oneorganisation rules the market. They have dominant market power as price is dominated by themin marketplace. They set various prices by adjusting output level to attain higher profits. It is themain reason they maintain an inefficient allocation of resources as they have all the power tofluctuate the price and they can increase price to reduce consumer surplus. Single seller increasesrates of products as there is no other competitor in the market and customers will buy theproducts whether it is costly or cheap (Ineffective allocation of resources by single seller,2017).The diagram below can reflect inefficient allocation appropriately:Illustration1: Ineffective allocation of resources by single seller, 2017(Source: Ineffective allocation of resources by single seller, 2017)The graph above shows that when there is a single company in the market then price isdominated by it. Q2 shows ineffective allocation of resources in which price of products is1
increased by organisation and it has resulted in decreased quantity but the percentage of both thechanges vary. Decrement is quantity demand is comparatively lower than increment in price.B. Advantage and disadvantage to single sellerAdvantage:Single seller have monopolistic market structure in which price can bedominated by them in order to reduce consumer surplus. It helps them to enhance profitability.As there is an absence in such type of market so firms attain higher profits.Disadvantage:Single seller are criticised by consumers because higher price for goods ischarged by them. Due to this reason, demand and sales of their products can be reduced. Firmsthat are adopting monopoly structure are known for price discrimination where different pricesare charged for same product from different customers.QUESTION 2A. Market structure which is used to benchmark allocative efficiencyPerfect competition market structure is used to benchmark allocative efficiency becausesubnormal profits are made by all the organisations in this type of structure. As there is intensecompetition in the market so business entities make sure that the price which is set by them forproducts meets customer's expectation and enhance profitability. It is used to set benchmarkbecause in such type of structure consumers are able to choose the products or services that theyare willing to buy. When this happens, organisation which are selling desirable goods thrive andresources moves to them. In perfect competition market structure price matches to marginal costof production which creates situation of allocative efficiency. The diagram below can help tounderstand this concept properly:2
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