Answer Happy

13. Suppose exports fall and savings rise. Which of the following would best describe the changes according to the Keynesian model of using income and expenditure in determining the equilibrium national output? (3 marks) (a) Injections function shifts up, withdrawals function shifts to the right, and the new equilibrium output is higher. (b) Injections function shifts down, withdrawals function shifts to the right, and the new equilibrium output is higher. (c) Injections function shifts up, withdrawals function shifts to the left, and the new equilibrium output is lower. (d) Injections function shifts down, withdrawals function shifts to the left, and the new equilibrium output is lower.
Warwick Inc. produces in a monopolistically competitive market. Which of the following correctly explains how a firm in this market structure would transition from the short run to the long run? (3 marks) (a) The supernormal profits earned by Warwick Inc. in the short run will attract new firms into the market. This will shift Warwick Inc.'s demand curve to the left and it will continue to shift left until Average Revenue equals Average Cost and only normal profits are made. (b) The supernormal profits earned by Warwick Inc. in the short run will attract new firms into the market. This will shift the market supply curve to the right, which will reduce the market price and the price faced by Warwick Inc. The price will keep falling until Average Revenue equals Average Cost and only normal profits are made. c) The supernormal profits earned by Warwick Inc. in the short run will remain in the long run, due to high barriers to entry which prevent the entry of new firms and thus protect Warwick Inc.'s profits. d) The supernormal profits earned by Warwick Inc. in the short run will lead to the market demand curve shifting to the right, which will raise the price firms can sell at and this will attract new firms into the market. This will shift Warwick Inc.'s supply curve to the right, which will reduce the price it can sell at, and this will continue until Average Revenue equals Average Cost and only normal profits are made.
12. A firm is able to make supernormal profits in the short run, but is only able to make normal profits in the long run. In which of the following market structures could this accurately reflect the position of the firm? (3 marks) (a) Only monopoly. (b) Only monopoly and monopolistic competition. (c) Perfect Competition, monopolistic competition and monopoly. (d) Perfect Competition, monopolistic competition and potentially oligopoly. depending on how firms are competing with each other.