1)What is the minimum number of firms required for an industry to be an oligopoly?

a) 1

b) 2

c) 3

d) 100

e) Many

2)True or False:

(a) In a competitive market, the incidence of an excise tax ("who really pays the tax") is on consumers, if demand is perfectly inelastic.

(b) An art museum is a good example of a public good that is best provided through government support.

(c) Public goods are a market failure because the cost of providing them cannot be measured - that is, the failure is on the producer-side of the potential market for public goods.

1)What is the minimum number of firms required for an industry to be an oligopoly? b) 2

The prefix "oil" means "few." So an oligopoly market has a few firms. If there was only one firm, it would be a monopoly. So two is the minimum.

2)a. The statement is False

Reason: The burden of taxes (incidence of tax) can be borne either by consumers, or by sellers or by both in certain proportions. The incidence of tax depends on the elasticity of demand and supply of the good. If the elasticity of demand is greater than the elasticity of supply, the consumers will bear higher proportion of the taxes, on the other hand if the elasticity of demand is lesser than the elasticity of supply, a higher proportion of the taxes will be borne by the sellers. In the above the demand is perfectly inelastic. This means that the entire burden of tax will fall on sellers of the good and not the consumers.

b. The statement is True

Reason: Public art museums are can be a good example of public good which is provided by the government. This allows the visitors to visit the museum free of cost, making it non excludable in nature. Also, visit to the museum made by one visitor does not reduce its availability for other visitors to consume. Thus the art museums (public museums) exhibit the characteristics of public good.

c. The statement is False

Reason: Public goods are non excludable and non rival in nature. This results in free rider problem in public goods. Since public goods results in positive externalities in the market, often the costs of producing these goods exceed the benefits that people accrues from them. These goods being non excludable in nature, people often tend to consume it at free of cost (i.e the marginal cost of coming the good is zero). This is the reason why public goods result in market failure.