Advanced Micro I – Williams Final Edition

1. Explain what Hayek might mean when he asserts that: “The most significant fact about the price system is the economy of knowledge with which it operates.”

(#97.a, 2014 #3.b)

 
 
 
 
 

2. Do externalities offer unambiguous proof of market inefficiency or is it possible for externalities to be consistent with market efficiency?*

*Hint: Professor Williams takes the mainstream view that a situation is efficient iff it is pareto-optimal.

(#44, part 2)

 
 
 
 

3. True or false: Cost curves are monetized reciprocals of product curves? Explain.

(#76, #104, 2014 2.b)

 
 
 
 

4. Atomistic markets are supposed to permit the achievement of Pareto optimality where externalities are absent.

Explain the meaning of this statement.

(#44, part 1)

 
 
 
 
 
 
 
 

5. State whether the following is true or false and explain your response:

Existing firms in a cartelized industry prefer to be regulated by government.

 
 
 
 
 
 
 

6. An urban rapid-transit line runs crowded trains (200 passengers per car) at rush hours, but very empty trains (ten passengers per car) at off peak hours. A management consultant makes the following argument: “The cost of running a car for one trip on this line is about $50 regardless of the number of passengers. So the per passenger cost is about 25¢ at rush hour but rises to $5 per passenger in off peak hours. Consequently, we had better discourage off-peak hour business.” Explain the fallacy.

“Commutation tickets” sold by some transit systems (reduced-price, multiple-ride tickets) are predominantly used in rush hours. Are such tickets a good idea?

(#42)

 
 
 
 
 
 
 

7. Is the following statement true, false, or uncertain? Explain.

A monopolist will never set price and quantity at a point where the demand is price-inelastic.

(2014 #3.a)

 
 
 
 

8. Give a brief answer to the following:

Collusions have the natural tendency to break down.

(#40.a)

 
 
 
 
 
 

9. Is the following statement true or false? Explain.

Price discrimination tends to be more common in the sale of services than in the sale of manufactured goods.

(2014 #3.c)

 
 
 
 

10. Some discount stores advertise that they can sell for less because they buy directly from the factory and sell to the consumer, thus eliminating middlemen. What is the flaw in that reasoning?

(2007 #4.a)