Exercises 4

Q1: What do we mean by duopoly?

Answer: The market consists of … producer(s)

(a) one

(b) two

(c) three

(d) many

 

Q2: Why can it be dangerous for potential buyers to face a duopolistic market structure?

Answer: Because prices will be… than in case of a … competition

(a) higher, perfect

(b) lower, imperfect

(c) lower, perfect

(d) higher, imperfect

 

Q3: Who are the main shareholders of Airbus?

(a) Americans

(b) Japanese

(c) Europeans

(d) Asians

 

Q4: How do we call the parent company of Airbus?

European … and Space Company

(a) Air

(b) Aeronautic Defence

(c) Manufacturing

(d) Union

 

Q5: How do European governments intervene in the working of Airbus?

By providing …

(a) subsidies

(b) passengers

(c) technical and financial advice

(d) aid

 

Q6: According to neoclassical economics, is it reasonable to provide subsidy for any industry?

Answer: No, because on a(n) … market subsidisation is just a waste of public money (i.e. irresponsible spending of households’ taxes)

(a) sellers’

(b) oligopolistic

(c) competitive

(d) monopolistic

 

Q7: What is the fundamental aim of the EU by providing subsidies to Airbus?

Answer: To gain new …

(a) technology

(b) subsidies

(c) markets

(d) enemies

 

Q8: Why is it reasonable to gain new markets and to increase the size of a company?

Answer: Because of the prevalence of … returns to scale

(a) decreasing

(b) increasing

(c) constant

(d) economic

 

Q9: What is the role of WTO in the debate of the two giant companies?

Answer: To carefully investigate government … since these grants may violate the norms of … trade.

(a) subsidies, free

(b) policies, fair

(c) officials, fair

(d) aids, perfect

 

B)  Q1: According to the authors, the rivalry between Boeing and Airbus is based on product differentiation. CORRECT

Q2: By product differentiation it is meant that producers try to provide the same products but for different prices on the same market (i.e. on the market of commercial air-planes). INCORRECT (because in case of product differentiation producers try to differentiate one from another by producing different types of products on the same market

 

Q3: Airbus’ strategy is the following: it takes the current hub-and-spoke system as given. That is, the company assumes that airlines will continue to fly smaller planes on shorter routes into a few large hubs, then onward to the next hub on giant airplanes. CORRECT

Q4: Boeing’s understanding of the airplane market and buyers’ behaviour is the following: the average airplane size will increase in the near future, and customers prefer less point-to-point flights on smaller airplanes INCORRECT (according to Boeing, the average airplane size has declined slightly, and customers prefer more point-to-point flights on smaller airplanes than large jumbos on long distances.)

Q5: Boeing’s new product wishes to provide the utmost comfort to passengers. CORRECT

Exercise 1

 

 A) In the following, you will find several statements. Decide whether these statements are true or false.

 

Q1: States are still insisting on using their power to shape market outcomes. (p. 129) TRUE

 

Q2: It is quite rarely the case that regulations that govern the market would be able to alter the behaviour of market agents, since the strategies available to them are formed basically by the forces of supply and demand. (p. 135) FALSE (in fact, just the opposite is the case)

Q3: Nations do not care about the location of high-tech industries, since the international division of labour provides an equal foot for every participant. (p. 130). FALSE (they do care about the location)

 

Q4: The term “national system of political economy” refers to domestic structures and institutions that can shape economic activity. (p. 130) TRUE

 

Q5: Governments can both facilitate and hinder technological developments. (p. 131) TRUE

Q6: According to neoclassical economics, national and international economic structures determine where and what type of innovation is adopted by market agents. (p. 131) FALSE (the statement is correct in the context of new economic theories only)

 

Q7: The right to establish a new corporation can be interpreted as a dimension of economic freedom. (p. 132) TRUE

Q8: In case of oligopolistic markets, producers behave as price-takers. (p. 132) FALSE (producers are price-setters on oligopolistic markets)

 

Q9: States are still important (if not the most important) players in the shaping of world economy. (p. 129) TRUE

 

Q10: The term “Nash equilibrium” describes a situation in which both producers and consumers are satisfied with the quality of the sold/purchased product. (p. 134-5) FALSE

 

 

B) Please read the following sentences and choose the most suitable expression(s) that are missing (from the statements).

 

Q1: The Nash … is a situation from which no players have an incentive to … (p. 134) H,D

 

Q2: An oligopolistic market can be best characterised as one in which power and … strongly effect economic outcomes. (p. 132) F

 

Q3: Technological developments can often have a strong impact on the broader … structure of the economy. (p. 131) C

 

Q4: The fact that production costs do not play such a significant role anymore in determining total costs can make it rather difficult for … to maintain their competitive advantage vis-à-vis the others. I

 

Q5: Economic … provides incentives for individuals to innovate and invest. (p. 132) E

 

Q6: National governments are highly attracted to use their … to influence the international division of labour. (p. 130) B

 

Q7: In case of a competitive market, producers are … (p. 132) G

 

Q8: By applying industrial, strategic, or any other type of … policies, governments attempt to influence the international division of labour (p. 130). A

 

Q9: … means that new technological developments make the old ones obsolete. (p. 131) J

 

A: interventionist, B: political power, C: socio-political, D: deviate, E: freedom, F: strategy, G: price-takers,

H: equilibrium, J: creative destruction, I: low-cost producers

 

 

C) The textbook quotes a famous statement that should be clearly understood. Please decide which of the related statements and/or interpretations are correct. (Note: the number of right answers may be more than just one.)

 

“With oligopoly, anything can happen.” (p. 133)

                          

(a) In the neoclassical world of perfect competition a single equilibrium exists only.

(b) Oligopolies are hard to regulate because they can easily relocate themselves to neighbouring countries.

(c) In oligopolistic markets it is possible for many equilibria to exist at the same time.

(d) In neoclassical economics, assuming the working of perfect markets, many Nash-equilibria exist.

(e) In case of oligopolies, there are many possible rational economic outcomes.

(f) In case of an oligopoly, many Nash-equilibria can exist.

(g) In case of an oligopoly, it is always easy to predict which strategy the players will choose because there are always more than one equilibrium.

(h) It is almost impossible to predict which strategies the players will choose in case of oligopolies.

(i) Oligopolies are equated with a single equilibrium.