Please help me with 2 Economics problems. ?

Question

Question #1: Which of the following statements is correct?

A. Over time, government has been less lenient toward advertising in order to enhance the ability of markets to allocate resources efficiently.

B. Over time, government has been more lenient toward advertising in order to enhance competition in markets.

C. Over time, government has been more lenient toward advertising in order to enhance brand loyalty.

D. Over time, government has been less lenient toward advertising in order to decrease elasticity of demand for specific products.

Question #2: When the number of firms in a market is small, firms

A. generally organize as a cartel.

B. are less concerned about competitors’ behavior, since there’s always sufficient demand to keep all firms happy.

C. are guaranteed an economic profit.

D. must generally consider how competing firms respond to their decisions.

Thank you guys so much.

Answer 1

Question 1 I think the answer is A. The government over time wants to crack down on misleading advertising. Think about cigarette advertising. If the government weren't very lenient about it, cigarette companies could make false claims regarding health and smoking and people would buy cigarettes unaware of the cost to themselves and society. This would constitute a market failure and misallocation of resources.

Question 2 the answer is D. Firms in oligopoly markets opt for the strategy which is in Nash Equilibrium as they know changes in price or quantity will cause a response from another firm possibly resulting in mutually lower profits. If you read about Bertrand oligopoly as well you'll see why A, B and C are wrong.

Hope that helps.