1. Use your ruler to draw a demand and supply competitive equilib- rium in a price-quantity diagram. Assume straight lines for demand and supply, and draw the supply curve so that it passes through the origin.

(i) At the competitive equilibrium, why is there an incentive for the firms (the suppliers) to form a monopoly?

(ii) At the competitive equilibrium, why is there an incentive for the consumers (the buyers) to form a monopsony?

2. True, false and explain.

(i) Let ABC Corp. be a monopolist. That ABC charges customer X the same price as cus- tomer Y should be interpreted by Industry Canada as proof that ABC is not discriminating between customer X and customer Y.

(ii) Economic theory suggests that the Department of Finance should consider replacing the federal excise tax on gasoline, which is a specific tax, with an ad valorem tax.

(iii) With regard to the acquisition of human capital, earnings uncertainty compounds the inefficiencies caused by capital market imperfections.

3. (3 marks for each part) Please read pages 2-12 of the link (https://www.nber.org/papers/w23884.pdf) and then answer the following questions.

(i) What are the main differences between the standard model of competitive equilibrium and what Wright et al. label as 'traditional' search models?

(ii) What are the main differences between 'traditional' search models and 'directed' search models surveyed by Wright et al.?