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Economics Government Policies

Herman Overlade Chapter 15 2. (Government Regulation) What three types of government policies are used to alter or control firm behavior? Determine which type of regulation is used for each of the following: a. Preventing a merger that the government believes would lessen competition b. The activities of the Food and Drug Administration c. Regulation of fares charged by a municipal bus company d. Occupational safety and health regulations that affect working conditions Answer

There are three types of government regulations used to alter or control firm behavior. Social regulation aimed at improving health and safety. Economic regulation of a natural monopoly and antitrust policy used to prevent a monopoly and foster competition. A. Antitrust policy b. Social regulation c. Economic Regulation d. Social regulation 10. (Regulating Natural Monopolies) The following graph represents a natural monopoly. Economics Government Policies By copybook b. If the firm is unregulated, what price and output would maximize its profit? What loud be its profit or loss? C.

If a regulatory commission establishes a price with the

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goal of achieving allocation efficiency, what would be the price and output? What would be the firm’s profit or loss? D. If a regulatory commission establishes a price with the

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goal of allowing the firm a “fair return,” what would be the price and output? What would be the firm’s profit or e. Which one of the prices in parts b, c, and d maximizes consumer surplus? What problem, if any, occurs at this price? A. ) It is considered a natural monopoly due to the long-run average cost curve that lopes downward over the range of market demand. . ) The profit is maximized at point I where the log range average cost intersects with demand. The profit would be the area of b:e and I:] c. ) The price is h and the output is z and intersects at n where the long range marginal cost intersects with demand. The loss would be represented by the area of h:g and m:n. D. ) The price is f and the output is y and intersects at I where the long range average cost intersects with demand. The profit would be represented by the area of e. Consumer surplus is maximized at point n which is the intersection of the long range marginal cost and demand.

It is at this point that the monopoly would operate at a loss and would have to be subsidized to continue operating. Chapter 16 1 . ) (Private and Public Goods) Distinguish among private goods, natural monopolies, open-access goods, and public goods. Provide examples of each. Answer Private goods are rival in consumption which means once consumed by one party it is unavailable to any other party. Suppliers of private goods can exclude those who onto pay. A natural monopoly is one that the lowest cost is achieved when on firms serves the entire market.

An open-access good is rival in consumption but non- payers cannot be excluded easily (Impeacher, 2009). Public goods are non-rival in consumption which means that one party consumption does not diminish the amount available to others. Examples Private goods: pizza. Natural monopoly: subway system. Open-access good: ocean fish. Public good: national weather service. Chapter 17 questions. A. What is the external cost per unit of production? B. What level is produced if there is no regulation of the externalities? C.

What level should be produced to achieve economic efficiency? D. Calculate the dollar value of the net gain to society from correcting the externalities. Answer b. ) Marginal private cost = marginal private benefit at 5 units c. ) Marginal Social Benefit = Marginal Social Cost at 4 units d. ) Net social benefit of producing 5 units minus the net social benefit of producing 4 at $2 cost per unit = (ex.)-(ex.)= $2 Reference Impeacher, W. A. (2009). Economics A Contemporary Introduction. Mason, Ohio: Southwest Coinage Learning.

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