Questions and Answers of Modern Principles Of Economics

What are some of the benefits of the deregulation?
What might some of the negatives of deregulation be?
What is a corporate merger? What is an acquisition?
What is the goal of antitrust policies?
How do we measure a four-firm concentration ratio? What does a high measure mean about the extent of competition?
How do we measure a Herfindahl-Hirshman Index? What does a low measure mean about the extent of competition?
Why can it be difficult to decide what a “market” is for purposes of measuring competition?
What is a minimum resale price maintenance agreement? How might it reduce competition and when might it be acceptable?
What is exclusive dealing? How might it reduce competition and when might it be acceptable?
What is a tie-in sale? How might it reduce competition and when might it be acceptable?
What is predatory pricing? How might it reduce competition, and why might it be difficult to tell when it should be illegal?
If public utilities are a natural monopoly, what would be the danger in deregulating them?
If public utilities are a natural monopoly, what would be the danger in splitting them into a number of separate competing firms?
What is cost-plus regulation?
What is price cap regulation?
What is deregulation? Name some industries that have been deregulated in the United States.
What is regulatory capture?
Why does regulatory capture reduce the persuasiveness of the case for regulating industries for the benefit of consumers?
Does either the four-firm concentration ratio or the HHI directly measure the amount of competition in an industry? Why or why not?
What would be evidence of serious competition between firms in an industry? Can you identify two highly competitive industries?
Can you think of any examples of successful predatory pricing in the real world?
If you were developing a product (like a web browser) for a market with significant barriers to entry, how would you try to get your product into the market successfully?
In the middle of the twentieth century, major U.S. cities had multiple competing city bus companies. Today, there is usually only one and it runs as a subsidized, regulated monopoly. What do you
Why are urban areas willing to subsidize urban transit systems? Does the argument for subsidies make sense to you?
Deregulation, like all changes in government policy, always has pluses and minuses. What do you think some of the minuses might be for airline deregulation?
Use Table 11.5 and Table 11.6 to calculate the Herfindal-Hirschman Index for the U.S. auto market. Would the FTC approve a merger between GM and Ford?Table 11.5Table 11.6
Use Table 11.5 to calculate the four-firm concentration ratio for the U.S. auto market. Does this indicate a concentrated market or not?Table 11.5 GM Ford Toyota Chrysler 19% 17% 14% 11%
Do you think it is possible for government to outlaw everything that businesses could do wrong? If so, why does government not do that? If not, how can regulation stay ahead of rogue businesses that
If the transit system were allowed to operate as an unregulated monopoly, what output would it supply and what price would it charge?
If the transit system were regulated to operate with no subsidy (i.e., at zero economic profit), what approximate output would it supply and what approximate price would it charge?
If the transit system were regulated to provide the most allocatively efficient quantity of output, what output would it supply and what price would it charge? What subsidy would be necessary to
Identify the following situations as an example of a negative or a positive externality:a. You are a birder (bird watcher), and your neighbor has put up several birdhouses in the yard as well as
Identify whether the market supply curve will shift right or left or will stay the same for the following:a. Firms in an industry are required to pay a fine for their carbon dioxide emissions.b.
Table 12.5 provides the supply and demand conditions for a manufacturing firm. The third column represents a supply curve without accounting for the social cost of pollution. The fourth column
For each of your answers to Exercise 12.2, will equilibrium price rise or fall or stay the same?Exercise 12.2Identify whether the market supply curve will shift right or left or will stay the same
Consider two approaches to reducing emissions of CO2 into the environment from manufacturing industries in the United States. In the first approach, the U.S. government makes it a policy to use only
Classify the following pollution-control policies as command-and-control or market incentive based.a. A state emissions tax on the quantity of carbon emitted by each firm.b. The federal government
Four firms called Elm, Maple, Oak, and Cherry, produce wooden chairs. However, they also produce a great deal of garbage (a mixture of glue, varnish, sandpaper, and wood scraps). The first row of
An emissions tax on a quantity of emissions from a firm is not a command-and-control approach to reducing pollution. Why?
The rows in Table 12.7 show three market-oriented tools for reducing pollution. The columns of the table show three complaints about command-and-control regulation. Fill in the table by stating
What is an externality?
In a market without environmental regulations, will the supply curve for a firm account for private costs, external costs, both, or neither? Explain.
What is command-and-control environmental regulation?
What are the three problems that economists have noted with regard to command-and-control regulation?
What is a pollution charge and what incentive does it provide for a firm to take external costs into account?
What is a marketable permit and what incentive does it provide for a firm to account for external costs?
What are better-defined property rights and what incentive do they provide to account for external costs?
As the extent of environmental protection expands, would you expect marginal costs of environmental protection to rise or fall? Why or why not?
As the extent of environmental protection expands, would you expect the marginal benefits of environmental protection to rise or fall? Why or why not?
What are the economic tradeoffs between low-income and high-income countries in international conferences on global environmental damage?
In the tradeoff between economic output and environmental protection, what do the combinations on the protection possibility curve represent?
What does a point inside the production possibility frontier represent?
Suppose you want to put a dollar value on the external costs of carbon emissions from a power plant. What information or data would you obtain to measure the external [not social] cost?
Would environmentalists favor command-and-control policies as a way to reduce pollution? Why or why not?
Consider two ways of protecting elephants from poachers in African countries. In one approach, the government sets up enormous national parks that have sufficient habitat for elephants to thrive and
Will a system of marketable permits work with thousands of firms? Why or why not?
Is zero pollution possible under a marketable permits system? Why or why not?
Is zero pollution an optimal goal? Why or why not?
From an economic perspective, is it sound policy to pursue a goal of zero pollution? Why or why not?
Recycling is a relatively inexpensive solution to much of the environmental contamination from plastics, glass, and other waste materials. Is it a sound policy to make it mandatory for everybody to
Can extreme levels of pollution hurt the economic development of a high-income country? Why or why not?
Technological innovations shift the production possibility curve. Look at graph you sketched for Exercise 12.13 Which types of technologies should a country promote? Should “clean” technologies
How can high-income countries benefit from covering much of the cost of reducing pollution created by low-income countries?
Refer to Table 12.2. The externality created by the refrigerator production was $100. However, once we accounted for both the private and additional external costs, the market price increased by only
Show the market for cigarettes in equilibrium, assuming that there are no laws banning smoking in public. Label the equilibrium private market price and quantity as Pm and Qm. Add whatever is needed
Table 12.12, shows the supply and demand conditions for a firm that will play trumpets on the streets when requested. Qs1 is the quantity supplied without social costs. Qs2 is the quantity supplied
A city currently emits 16 million gallons (MG) of raw sewage into a lake that is beside the city. Table 12.13 shows the total costs (TC) in thousands of dollars of cleaning up the sewage to different
In the Land of Purity, there is only one form of pollution, called “gunk.” Table 12.14 shows possible combinations of economic output and reduction of gunk, depending on what kinds of
Do market demand curves reflect positive externalities? Why or why not?
Suppose that Sony's R&D investment in digital devices has increased profits by 20%. Is this a private or social benefit?
The Junkbuyers Company travels from home to home, looking for opportunities to buy items that would otherwise end up with the garbage, but which the company can resell or recycle. Which will be
When residents in a neighborhood tidy it and keep it neat, there are a number of positive spillovers: higher property values, less crime, happier residents. What types of government policies can
Education provides both private benefits to those who receive it and broader social benefits for the economy as a whole. Think about the types of policies a government can follow to address the issue
In what ways do company investments in research and development create positive externalities?
Will the demand for borrowing and investing in R&D be higher or lower if there are no external benefits?
Why might private markets tend to provide too few incentives for the development of new technology?
What can government do to encourage the development of new technology?
What are the two key characteristics of public goods?
Name two public goods and explain why they are public goods.
Explain why the federal government funds national defense.
Can a company be guaranteed all of the social benefits of a new invention? Why or why not?
Is it inevitable that government must become involved in supporting investments in new technology?
How do public television stations, like PBS, try to overcome the free rider problem?
Why is a football game on ESPN a quasi-public good but a game on the NBC, CBS, or ABC is a public good?
Provide two examples of goods/services that are classified as private goods/services even though they are provided by a federal government.
HighFlyer Airlines wants to build new airplanes with greatly increased cabin space. This will allow HighFlyer Airlines to give passengers more comfort and sell more tickets at a higher price.
Radio stations, tornado sirens, light houses, and street lights are all public goods in that all are nonrivalrous and nonexclusionary. Therefore why does the government provide tornado sirens, street
Assume that the marginal private costs of a firm producing fuel-efficient cars is greater than the marginal social costs. Assume that the marginal private benefits of a firm producing fuel-efficient
Table 14.10 shows levels of employment (Labor), the marginal product at each of those levels, and the price at which the firm can sell output in the perfectly competitive market where it
Becky and Sarah are sisters who share a room. Their room can easily get messy, and their parents are always telling them to tidy it. Here are the costs and benefits to both Becky and Sarah, of taking
Table 14.11 shows levels of employment (Labor), the marginal product at each of those levels, and a monopoly’s marginal revenue.Table 14.11a. What is the monopoly’s marginal revenue product at
Do unions typically oppose new technology out of a fear that it will reduce the number of union jobs? Why or why not?
Compared with the share of workers in most other high-income countries, is the share of U.S. workers whose wages are determined by union bargaining higher or lower? Why or why not?
Are firms with a high percentage of union employees more likely to go bankrupt because of the higher wages that they pay? Why or why not?
Do countries with a higher percentage of unionized workers usually have less growth in productivity because of strikes and other disruptions caused by the unions? Why or why not?
Table 14.13 shows information from the supply curve for labor for a monopsonist, that is, the wage rate required at each level of employment.Table 14.13a. What is the monopsonist’s marginal cost of
What is the safety net?
Briefly explain the differences between TANF, the earned income tax credit, SNAP, and Medicaid.
Who is included in the top income quintile?
What is measured on the two axes of a Lorenz curve?

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