Of the various models of noncooperative oligopoly behavior discussed in the text, which one has the greatest shortcoming when it comes to explaining observed behavior in an oligopoly market
What will be an ideal response?
The kinked demand curve model is built around an assumed market price that currently exists for the market's output. Given this initial price, demand is relatively elastic above that price and relatively inelastic below that same price. One of the strong points of this model is its ability to explain the price rigidity that is sometimes observed in oligopolistic markets. Its major shortcoming is that it is does not explain how the initial equilibrium market price is determined. In addition, the price rigidity referred to above is not observed in all oligopolistic markets. The other models of noncooperative oligopoly behavior discussed in the text tend to be much more descriptive in nature, focusing on strategies firms have in fact adopted on occasion in an oligopolistic setting.
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The unemployment compensation program:
a. makes recessions more severe. b. makes recession less severe. c. makes recessions more severe and inflationary episodes less severe. d. makes recessions less severe and inflationary episodes more severe. e. has no effect on the severity of recessions and inflationary episodes.
Other things equal, an increase in government purchases combined with an equal increase in taxes would: a. increase AD
b. decrease AD dramatically. c. decrease AD slightly. d. leave AD unchanged.