Why might economists prefer private ownership of monopolies over public ownership of monopolies?
The private monopolist is governed by the market. Even though the market solution is sub-optimal, it may be better than outcomes generated by publicly owned monopolies. Publicly owned monopolies may restrict output to levels below the private market outcome and thus generate an even lower level of social surplus than a private profit-maximizing monopolist.
Private owners have an incentive to minimize cost as long as they reap benefits in the form of higher profits. Government bureaucrats have no incentive to reduce costs. The losers are customers and taxpayers, whose only recourse is the political system.
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In the extreme case of a complete crowding-out effect
A) an increase in interest rates will stimulate investment spending. B) an increase in government spending will not increase aggregate demand. C) an increase in tax rates will stimulate work effort. D) an increase in government spending will stimulate investment spending.
If equilibrium is present in the foreign exchange market and a nation is experiencing a trade deficit,
a. the nation must be experiencing a net capital inflow. b. the nation must be experiencing a net capital outflow. c. the nation's inflation rate must increase. d. the nation's interest rate must increase.
Which of the following purports to be a "free-trade" agreement?
A. USSR B. WTO C. CAFTA D. GATT
The shaded area in Figure 24.1 represents
A. Total cost. B. Total loss. C. Total revenue. D. Total profit.