You are the mayor of your home town, and one day you arrive at city hall to find angry voters demonstrating against you. They are mad because your office created a garbage-collection monopoly by awarding only one company a permit to collect garbage in your town. The voters claim that the company is overcharging and providing poor service. They want you to do something that will lower rates and improve service. You call your staff economist, who presents evidence that there are substantial economies of scale to garbage collection. What are your options if you are interested in efficiency?
What will be an ideal response?
Since there are substantial economies of scale, you would not want to allow more companies to enter and you would not want to split up the existing company. You can either regulate the monopoly, or put the city in charge of garbage collection (either by buying out the monopoly, or by revoking its permit and taking over garbage collection).
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Which of these is NOT an example of opportunity cost?
A. Lobster catchers in Point Judith, Rhode Island continued to trap lobsters at the cost of depleting the lobster population. B. President George W. Bush's administration has pushed for oil exploration in the Arctic National Wildlife Refuge in Alaska at the cost of environmental preservation. C. Lobster catchers in Port Lincoln, Australia paid a licensing fee for the right to own lobster traps. D. The "bridge to nowhere" to be built near Anchorage, Alaska comes at the cost of adding to the federal budget deficit.
According to the policy irrelevance proposition
A) monetary policy can effectively reduce the rate of unemployment in the short run. B) workers are not rational in the long run. C) expansionary monetary policy will only lead to a higher rate of inflation in the long run. D) the Phillips curve slopes upward, not downward as traditionally assumed.
The free rider problem is the main source of market failure in the provision of nonexcludable public goods.
Answer the following statement true (T) or false (F)
Suppose Congress raises taxes and the monetary authorities slow the annual money supply growth from 10 percent to 5 percent. If decision makers accurately anticipate the impact of these policy changes on prices,
a. unemployment will rise. b. unemployment will fall. c. there will be no effect on unemployment. d. unemployment will fall if the change in monetary policy dominates, but unemployment will rise if the change in fiscal policy dominates.