ECONOMICS ASSIGNMENT

Economics Assignment

Economics Assignment

Task Part 1

Answers to the Multiple Choice Questions:

E) is based on fixed quantities. the performance of the global economy

A) the performance of the global economy

A) movement upward and to the left along the demand curve.

E) all of the above.

A) A drought.

C) natural experiments, statistical investigations, and economic experiments

B) a large percentage change in price results in a small percentage change in quantity supplied.

D) the amount by which A must reduce production of Y is less than the amount by which B must reduce production of Y to produce an additional unit of X.

B) the LRAC curve slopes downward.

E) inelastic

E) straight-lined and downward sloping

B) raise the price of electricity by 12.5 percent.

E) decreases at low outputs and increases at high outputs

A) "Wage increases have forced us to raise our prices."

E) Both A and C.

B) faced; between a higher test score and an evening at the movies; the 15 percent fall in your grade

B) the cost of using resources bought in the market, owned by the firm, and supplied by the firm's owner.

C) Capital earns profit.

E)III only

C) the income effect dominates the substitution effect.

Part B

Question 1. Explain the advantages and disadvantages of regulating a natural monopoly through (a) a marginal cost pricing rule and (b) an average cost pricing rule.

Answer. All the economic concepts are based on the nature of markets, costs and prices. Governments must try to make society benefit from the specific potentials of some monopolies and quasi-monopolies while controlling their excesses and simultaneously trying to preserve workable competition in a majority of markets. These results in an ineluctably ambiguous policy, handling at the same time the carrot, that is, the legalization and regulation of “good” monopolies, and the stick, that is, the repression of “bad” monopolies.

To discover, develop, and industrialize new processes or new products is very expensive. To copy a successful innovation is always cheaper. When the copy is free, the imitators often make more profits than the innovators and can even ruin them. It is thus necessary to protect innovators by a device prohibiting imitation for long enough to offer a real incentive to invest in innovation. This is the purpose of patents, conferring on innovators a long-run legal monopoly for the exploitation of their innovations.

A particularly dangerous form of monopoly for social welfare is that which results from the creation of a cartel. A cartel is a combination of two or more enterprises with the purpose of limiting competition or fixing prices. For consumers, a cartel has the short run harmful consequences of a monopoly. However, with a cartel, one cannot hope that consumers are compensated by benefits generated in the long run by acceleration in innovations. On the contrary, compared with the initial situation in competition, belonging to a cartel decreases a firm's incentive to innovate. The cartel is thus doubly harmful, which explains the repression of cartels by public regulators.

The case of natural monopolies exposes the regulator to specific ...