Quiz 13: Market Structures Iii: Oligopoly


If one has a positive rate of time preference, this merely indicates that the individual values current consumption more than present consumption. This is very commonly seen in markets such as movie tickets vs. DVD sales; consumers typically pay extra money to watch a movie in theaters as opposed to waiting for a DVD release. On a similar note, the interest rate refers to the rate of money per year that gets accumulated on, for example, savings. Finally, a firm or an individual can choose to use savings for investment purposes. These include purchasing capital goods, or even producing capital goods. (a)Relating to the text above, if Bryan values present consumption more than future consumption, he has a positive rate of time preference.(b)The reward to households for forgoing present consumption is the interest rate.(c)Producing capital goods rather than producing final goods is known as investment.

Supply of loanable fund: Supply of loanable fund refers to the amount of savings from the present consumption for the loan with the intention to get reward for their sacrifice of present consumption. Upward supply of loanable fund: The important source of loanable fund is households. The loanable fund is collected through the savings. Saving is the sacrifice of present consumption. Households get reward for their sacrifice in the form of interest. Higher interest rate increases the level of saving when other things remain the same. This in turn increases the amount of loanable funds available. When the interest rate is high, then the opportunity cost for present consumption is also higher, which in turn increases the amount of savings. Hence, the supply curve of loanable funds slopes upward to the right.

Intellectual property right: Intellectual property right refers to the protection of the intangible assets created through human intelligence and his/her ideas against losing financial benefits and the recognition of the inventor. Impact of violating intellectual property right on the economy: If the intellectual property rights are violated, then the innovator will lose the financial benefits which he/she is supposed to obtain from the royalty. This in turn gives disincentive to invest in new inventions and innovations. This in turn reduces the employment in such industries. Example: If the pirated software is widely used, then the developer of the software loses income which he/she is supposed to obtain from the royalty. This will lead to reduction in the software development, which in turn reduces the employment in the software development sector.

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