BSocSc Bachelor of Social Science Bachelor of Social Science Economics 2 — Questions and Answers
Question 1: Which market structure is characterized by many sellers offering differentiated products with some pricing power?
- Perfect competition
- Monopoly
- Monopolistic competition (Correct answer)
- Oligopoly
Correct answer: Monopolistic competition
Monopolistic competition features many firms selling similar but differentiated products, giving each some control over price.
Question 2: When the government imposes a price ceiling below the equilibrium price, the likely result is:
- A surplus of the good
- A shortage of the good (Correct answer)
- No change in quantity supplied
- An increase in producer surplus
Correct answer: A shortage of the good
A binding price ceiling keeps price artificially low, causing quantity demanded to exceed quantity supplied, creating a shortage.
Question 3: The concept of 'crowding out' in macroeconomics refers to:
- Higher government spending reducing private investment via rising interest rates (Correct answer)
- Inflation reducing real purchasing power
- Imports replacing domestic production
- Monopolies displacing competitive firms
Correct answer: Higher government spending reducing private investment via rising interest rates
Crowding out occurs when government borrowing raises interest rates, making private borrowing more expensive and reducing private investment.
Question 4: A Lorenz curve that bows further away from the 45-degree line of equality indicates:
- Lower income inequality
- Higher income inequality (Correct answer)
- Zero unemployment
- A balanced budget
Correct answer: Higher income inequality
Greater deviation of the Lorenz curve from the perfect equality diagonal reflects a higher Gini coefficient and more unequal income distribution.
Question 5: In game theory, a Nash equilibrium is a situation where:
- All players maximize joint profit
- No player can improve their outcome by unilaterally changing strategy (Correct answer)
- One player dominates all others
- Government regulation sets prices
Correct answer: No player can improve their outcome by unilaterally changing strategy
A Nash equilibrium occurs when each player's strategy is the best response to the strategies chosen by all other players.
Question 6: Which of the following best describes the Keynesian view of aggregate demand during a recession?
- Markets self-correct quickly through price flexibility
- Government spending can stimulate demand and reduce unemployment (Correct answer)
- Monetary supply should remain constant
- Tax cuts are the only effective policy tool
Correct answer: Government spending can stimulate demand and reduce unemployment
Keynesians argue that during recessions, sluggish prices prevent self-correction, so fiscal stimulus through government spending is needed to boost aggregate demand.
Question 7: The 'invisible hand' metaphor introduced by Adam Smith describes how:
- Central planners allocate resources efficiently
- Self-interested individuals in free markets unintentionally promote social welfare (Correct answer)
- Monopolies control market outcomes
- Trade unions set wages
Correct answer: Self-interested individuals in free markets unintentionally promote social welfare
Adam Smith argued that individuals pursuing their own self-interest in competitive markets inadvertently promote economic efficiency and social benefit.
BSocSc Bachelor of Social Science Bachelor of Social Science Economics 2
Which market structure is characterized by many sellers offering differentiated products with some pricing power?