Question

1. True/False/Uncertain (30 marks)

Answer each of the following statements True/False/Uncertain. Give a full explanation of your answer including graphs where appropriate. (When in doubt, always include a fully labeled graph.)

A) As a general rule of thumb, the S-D model is appropriate for examining markets with many buyers, but few firms.

B) Under standard assumptions, the S-D model shows that equilibrium only occurs on the inelastic portion of the demand curve.

C) The principle of non-satiation is a standard assumption imposed in indifference curve mapping.

Answer 1

A) True

Reason: A market with many buyers and few firms is like an oligopoly market. In such markets, supply demand model is appropriate for equilibrium results.

B) Uncertain

Reason: It happens only in case of market with very few sellers particularly in a monopoly market.

C) True

Reason: Non- satiation assumption is an important assumption required to ensure strict convexity of Indifference curves.

Thanks!