Question 1

Using three correctly labelled graphs representing, a perfectly competitive market for a product, an individual firm producing that product for sale through that type of market and a monopoly firm producing that product for sale through a market.

a) Lebel the axes and the demand and supply curves and identify the market equilibrium price and quantity for the product in the perfectly competitive market,

b) draw the monopoly firm's demand curve for that product on the appropriate graph and

c) the individual firm's demand curve for that product on the appropriate graph,

d) describe the shape of that demand curve, and explain why it is that shape

e) does this curve represent/measure anything else besides demand, if so, explain.

PART A: ANSWER QUESTIONS 1 AND 2 IN THE SPACE AFTER EACH QUESTION TOTAL OF 26 MARKS FOR PART A Question 1. (10 marks) Using three correctly labelled graphs representing, a perfectly competitive market for a product, an individual firm producing that product for sale through that type of market and a monopoly firm producing that product for sale through a market: a) Label the axes and the demand and supply curves and identify the market equilibrium price and quantity for the product in the perfectly competitive market, b) draw the monopoly firm's demand curve for that product on the appropriate graph and c) the individual firm's demand curve for that product on the appropriate graph, Monopoly firm (Perfectly Competitive) Market Individual Firm (5 marks) d) describe the shape of that demand e) does this curve represent/measure anything curve, and explain why it is that shape else besides demand, if so, explain. Monopoly firm Monopoly firm Individual PC firm Individual PC firm (2 marks) (3 marks)Question 2 (16 marks) An economy experiences a shock to its equilibrium whenever there is a change in the level of aggregate demand for production and/or aggregate supply of production. Using the model of aggregate demand and aggregate supply for an economy (AD/AS model), show on a graph and tell in words for case a) and case b) below. 1) What happens to the level of prices and the level of output in the present business cycle (the short run)? (8 marks) ii) What happens to the level of prices and the level of output in the subsequent business cycles (the long run) if the economy is allowed to adjust on its own (without any intervention) to its long run equilibrium state? (8 marks) Case a) Aggregate demand experiences a shock decrease (shifts left). Short-run: Long-run: Case b) Short run aggregate supply experiences an increase (shifts right) Short-run: Long-run