Article 1: How will scientific research output respond to a policy-induced increase in its demand?

Today's knowledge-based globalized economies rely heavily on scientific research output to ensure continuing high productivity growth. Seeking to promote growth in their domestic economies, governments around the world subsidize scientific research in many different ways.

One way to increase scientific research would be to implement policies designed to increase demand for scientific research - for example, by paying a subsidy to purchasers. Such an increase in demand would be expected to lead to an increase in quantity supplied of scientific research and its market price. But how successful would such a policy be? Would the price rise caused by an increase in demand be associated with a relatively large or relatively small increase in scientific research output? In other words, is the elasticity supply of scientific research high or low?

Some clues to the answer to this question can be found in the estimate, contained in a US study, that a 100 percent increase in the number of research scientists would give little more than a 50 percent increase in research output. Further increases in the number of scientists would increase output by an even smaller proportion. The fundamental argument is that the best research scientists are already in the industry - any increase in the number of scientists would involve employment of researchers with lower skills than those already employed.

assuming that the wage rate paid to all research scientists is the same,

1. If, as the demand for scientific research output increases, the companies and institutes undertaking this research respond to this increase in demand by employing more researchers, is the supply of research output likely to be elastic or inelastic? Explain
2. As output increases further, does supply elasticity become smaller or larger?
3. Is the elasticity of supply of scientific research output likely to increase over a six month period? Over a 10-year period? Explain

Article 2: Internet increases competition in global marketplace

The rise of the Internet as a global means of communication has led many commentators to argue that the ability of internet users to connect with business and consumers anywhere in the world as easily as they might communicate with their next-door neighbor means that the potential for international competition between firms has increases enormously. In other words, the internet is increasing global competition and promoting the efficiency gains that are an acknowledged income of competitive markets. In a paper to an 'Electronic Consumer' conference in NZ, the former deputy chairperson of the ACCC, Allan Asher drew the following implications for global competition from the internet revolution.

"It seems almost certain that online markets and other forms of electronic commerce will expand rapidly to the point where a truly global retail marketplace will emerge. Already some industries are feeling the effects of these new technologies, especially those which are essentially information and booking services....

This global electronic market will present both tremendous opportunities as well as some very real challengers for regulators, industry and consumers....

Indeed, electronic commerce and online commerce especially has the potential to close the gap which so often exists between idealized economic models of perfect competition and the imperfect way that many markets actually work in practice....online commerce can do this by increasing competition amongst suppliers and by decreasing the opportunity and transaction costs faced by buyers in gathering and processing information....

Electronic commerce has the potential to deliver significant gains to consumers in terms of price, quality and service through increased competition. This is likely to happen for two interrelated reasons - lower barriers to entry and increased numbers of suppliers competing in product markets.

Traditionally, local or geographic monopolies have persisted because of high barriers to entry linked to large establishment (fixed) costs in such areas as physical infrastructure, distribution networks and advertising.

The internet and to a lesser extent other electronic service delivery channels, lower barriers to entry significantly for providers of many products and services.....

Since the internet allows newer and small players to promote and sell products in direct competition with larger players, it will increase the number of competitors in the market. Consumers can now tap into a global market and are not bound to a restricted number of physically nearby suppliers - improved choice, price, quality should result.

1. How does the author of the above material see the internet changing the extent to which markets conform to the three assumptions of the perfectly competitive market structure?
2. Why do you think the author welcomes to the possibility that the internet will close the gap between market structures observed in the real world and the idealized model of perfect competition?

1. Consider two goods A and B with income elasticity of demand -2.5 and 0.8 respectively. During recession where consumers' income generally decreases, both sellers of A and B will earn higher revenue. Do you agree or disagree? Explain your argument

2. Which of the following goods and services has the higher price elasticity of demand? Explain your answer.

1. Jet skis or toothpicks
2. holidays in New Zealand in the short or long run.

3. List and explain any THREE strategies a furniture firm in monopolistic market uses to differentiate its products?

4. Explain some of the gains and challenges from collusions under oligopoly. State an incentive to cheat a cartel agreement by a member

5. Explain any of the TWO requirements a firm must adhere to practice price discrimination.