Answer two of the three questions below in 600 words or fewer using diagrams to illustrate your answers. Each question answered is worth 10% of your overall mark for the module.
1.Show how monopsony may lead to increased employment after the introduction of a minimum wage.
2.A consumer splits their income equally between two goods. If the price of one good increases by 10% and their income increases by 5%, show that the consumer’s optimal consumption bundle will change despite them being able to afford their original bundle.
3.When estimating a demand function, explain why fitting a line of best fit through observed price and quantity combinations over time is not likely to yield good estimates.
Select a (domestic)1 public limited company of your choice which has some degree of market power. In an essay of 2400 words or fewer, evaluate the pricing strategies it employs for one of its core products.
Task B must be written as an essay. You will need to build up a case study of your chosen company. You must first demonstrate that the company has some power to set its own price (that is, it has some degree of market power) – e.g. what is the structure of the industry it operates in? What is its market share for the product? How concentrated is the industry? To make the task a simple as possible restrict your attention to a single product in a single country (the firm can sell more than one product in many countries but you should focus on one).
You must then use economic analysis to evaluate the pricing strategies your firm has adopted for its main product(s). Make clear comparisons between the theoretical assumptions and predictions of economic pricing strategies and the strategies implemented by your chosen firm. Are the strategies adopted by the firm optimal? If so, why? If not, why not? How might they be improved? You need to back up your analysis with empirical evidence and concrete examples of your firm’s pricing.
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