Exercise 1. A)In the following, you will find several statements

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.

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