Assume an economy with a high level of oligopoly power. The government uses anti-trust

enforcement and effectively promotes policies that will increase economic competition. 1. Which market represents the impact of this new government intervention? 2. What economic variable is the government targeting and what is the economic justification to do so? (Explain in words)

3. Graph the market in question. Show how strong anti-trust enforcement on the part of the government affects the equilibrium situation. Explain in words the implications of this government intervention (explain in words)

4. In the economy just described, assume that due to fiscal consolidation the government reduces unemployment benefits. Show in a new graph how the equilibrium situation above is affected. Explain in words the end result.

Wage Rate (W) W1 I- W2 X X W3 /-- \\ W4 Unemployment Rate (*)