1-Explain the unique characteristics of the four primary market structures.
- Perfect Competition Market Structure: 1) Free Entry and Exit, 2) Price Taker, 3) Homogenous Products, 4) Many Buyers and Sellers and 4) Symmetry of Information
- Monopolistic Competition: 1) Similar Products that unique, 2) Producers are price-maximizes, 3) Free Entry, 4) Imperfect Information and 5) Economic profit is Zero in long-run
- Monopoly: 1) Single Producer, 2) Price Marker, 3) Monopolist’s supply curve represents market, and 4) High barriers to entry
- Oligopoly: 1) Producers set prices, 2) Market is price sensitive, 3) Pure oligopoly market offers homogenous products for sale and 4) entry into the market is not easy.
We find very few examples of Perfectly Competitive markets and for that reason; it is considered an ideal market (Hall, 2007).
2-Explain why economic profits are zero in the long run in a monopolistically competitive market.
Monopolistically Competitive Market is a hybrid between Perfectly Competitive Market and Monopoly, in which different sellers sell similar products that are unique. For instance, a soft-drink industry, various companies sell similar products that differ slightly from one another, which gives them a competitive edge and make their product unique. Another characteristic, of monopolistically competitive market, is that has free entry. In Short-run, when firms are earning substantial economic profits, new firms enter the market, which expands the supply of industry. As the supply line shifts to the right, price dwindles and profits shrinks. In the long run, because of the new entrants, economic profits are zero and firms operate at break-even (Hunter, 2011).
3-What are the characteristics of a public good?
Public good has number of characteristics, which are;
- Non-excludable: This implies that individuals cannot be excluded from its use. For instance, national defense is a good, which is used by all. A military of a country provides a defense to all citizens against foreign aggression. Another example of it is fresh air. However, one issue with the example is that it is non-rivalries, as there is a fixed natural quantity of fresh air and to a very small extent, the use of fresh air, by one individual, affects the quantity (Budd, 2015).
- Non-Rivalries: This term implies that the use of public good, by an individual, does not reduce the amount for the other. Its example is knowledge, which quantity is not affected by the use of an individual. Another example is of official statistics; however, it is a considered an imperfect example.
4-Discuss the two ways that product differentiation affects the demand for a product.
Before we discuss that, it is imperative to understand that change in Quantity demanded is different from the change in Demand. Change in quantity demanded is the change along the curve, and it is because of the change in price. However, the shift in demand curve is because of changes in exogenous factors.
Product differentiation affects taste because of that demand curve shifts. Therefore, it can be said that because of product differentiation causes demand curve shifts. Also, to differentiate the product, a firm has to invest on the p[product, which affects its price, because of that quantity demanded can change. Therefore, in two ways product differentiation affects demand; a shift in demand and quantity demanded (Trisha, 2017).
5-Describe at least five different forms of government intervention in the economy.
1) Regulations: Government can regulate markets/industries by devising various kinds of policies that directly or indirectly affects sales. Also, it can use tax as an instrument to regulate industry (Orr, 2011).
2) Incentives: Incentives can be used to increase investment or intensify economic activity in a country. Different governments devise various kinds of policies to attract foreign FDI, which impacts economic growth and employment (Francis, 2016).
3) Subsidies: Government can subsidize a particular industry, which may have strong implications on the economy. For instance, United States subsidized its steel and energy industries (Matthews, 2016).
4) Fiscal Instrument: By increasing or decreasing Fiscal Expenditure, the government can directly impact the size of economy and rate of unemployment (Bryan, 2016).
5) Import Quota: By abolishing or implement Import Quota, a government can regulate and affect the economy.
References
Bryan, B. (2016, February 22). Only one thing that can jumpstart the global economy right now — but no government is willing to do it. Retrieved from Business Insider: http://www.businessinsider.com/fiscal-stimulus-could-jumpstart-economy-2016-2
Budd, J. M. (2015). Democracy, Economics, and the Public Good: Informational Failures and Potential. Springer.
Francis, N. (2016, February 29). State Tax Incentives for Economic Development. Retrieved from Urban Institute: https://www.urban.org/research/publication/state-tax-incentives-economic-development
Hall, R. (2007). Microeconomics: Principles and Applications. Cengage Learnin.
Hunter. (2011, November 11). Over half of all U.S. tax subsidies go to four industries. Retrieved from Daily Kos: https://www.dailykos.com/stories/2011/11/10/1034130/-
Matthews, R. G. (2016, May 21). U.S. Measures to Protect Steel Sector Do Not Address Root Problem. Retrieved from Fortune: http://fortune.com/2016/05/21/us-china-steel-sector/
Orr, A. (2011, April 1). The economic—and other—benefits of regulations. Retrieved from Economic Policy Institute: http://www.epi.org/publication/the_economic_-_and_other_-_benefits_of_regulations/
Trisha. (2017, October 1). Product Differentiation and the Demand Curve. Retrieved from Economic Discussion: http://www.economicsdiscussion.net/monopolistic-competition/product-differentiation-and-the-demand-curve/5384
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