L1031 Microeconomics

1. a. Carefully define the concept of contract curve. Given an economy with two individuals, how can we find its contract curve? Provide an intuition for your answer. (15 marks)

b. Discuss the relationships between the concepts of Pareto efficiency, general competitive equilibrium, and equity in an economy. You may use an appropriate graph to help your discussion. (20 marks)

c. What is the condition characterizing a general competitive equilibrium with production? Explain, both formally and intuitively, the reason behind it. (15 marks)

2. a. Explain, both formally and intuitively, what is the relationship between the elasticity of demand and the price set by a monopolist. Include some real-world examples to help your discussion. (15 marks)

b. What actions should the members of a cartel take to ensure the survival of the cartel and why? Again include some real-world examples. (15 marks)

c. Consider an oligopoly in which firms choose how much to produce and the price is determined by market demand. Explain in detail what are the consequences of assuming that firms decide their quantities simultaneously and those of assuming that they choose them sequentially.Explain, formally and intuitively, the reason behind the difference in such consequences. (20 marks)