A common feature of regulated industries is cross-subsidization, which is a situation when one group of customers pays prices above costs while another group of customers pays prices below costs. The one group is subsidizing the other group
Is this practice more consistent with the capture hypothesis or the share-the-gains, share-the-pains theory? Explain.
Cross-subsidization is more consistent with the share-the-gains, share-the-pains theory. The capture hypothesis can explain why the firms would be able to charge prices above costs to the one group but not why they have to charge prices below costs to another group. But the share-the-gains, share-the pains theory explains this by saying the subsidized group of customers has been able to influence the regulators so that their costs are not so great to themselves.
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Which of the following will cause a decrease the supply of jeans?
A. A decrease in the expected future price of jeans. B. An increase in the wages paid to workers who make jeans. C. A decrease in the price of jeans. D. A decrease in the demand for jeans.
If ________ enters into an exchange with another party who has ________ information, there is asymmetric information and adverse selection.
A. only a seller, but not a buyer; more B. only a buyer, but not a seller; more C. a buyer or seller; an equal amount of D. a buyer or seller; more
The sale of a used automobile would not be included in GDP of the current year because it is
A. Nonmarket transaction B. Nonproduction transaction C. Purely financial transaction D. Private transfer payment
George Davis and Michael Wohlgenant estimate that for every 1 percent increase in the price of Christmas trees, quantity demanded falls by 0.6 percent. The demand for Christmas trees is:
A. unit elastic. B. inelastic. C. perfectly inelastic. D. elastic.