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  1. The Sherman act makes it illegal to...
  2. ________________ plague transactions involving individual contractors (roofers, plumbers, and so forth) and also many labor market relationships.
  3. Mergers of this type are often blocked by the US government based on Section 7 of the Clayton Act.
  4. On rare occasions the government has used the Sherman Act to break up a monopoly.
  5. A good that is both rivalrous and excludable is a ______________. In the absence of any significant market failure, private firms will provide those good at close to efficient levels.
  6. What is a marketable public good?
  7. Anti trust laws operate primarily in three areas:
  8. In the case of a positive externality, the market left to itself..
  9. The market based approach to negative externalities is tradable permit, which is...
  10. A tax on each unit of a good equal to the external harm it causes can correct a negative externality and bring the market to the effluence quantity of the good.
  11. In some insurance markets, an insurance company could determine which consumers are most likely to exhibit costly behavior.
  12. Because of problems with marginal cost pricing, regulators around the world more commonly choose an alternative, called average cost pricing.
  13. What is a common resource?
  14. What is adverse selection?
  15. What are two leading market based approaches to negative externalities?
  16. One market based approach to negative externalities is taxes.
  17. Describe the Coase Theorem,
  18. What is rivalry?
  19. A market with a positive externality associated with producing or consuming a good will produce less than the efficient quantity, creating a deadweight loss.
  20. How does the Affordable Care Act solve the adverse selection problem?
  21. What is asymmetric information?
  22. What is anti-trust law?
  23. A system of tradable permits for pollution, like a tax, can make the market qunaityt of polluting goods efficient.
  24. How can we achieve the efficient quantity?
  25. What is an example of moral hazard?
  26. Why does the market failure arise?
  27. Health insurance companies decide which services they will cover and which they won't.
  28. The markets corrective efforts always entail a cost-- either to obtain the additional information or to deal with its absence.
  29. What is the Coase theorem?
  30. What is average cost pricing?
  31. What is the most common way of dealing with a negative externality?
  32. In some cases, monopoly or significant market power is embraced by the government, because the market would not function week under conditions colas to perfect competition.
  33. What is the free rider problem?
  34. Economically speaking, the law encourages people to channel their efforts into mutually beneficial pareto improving exchanges by discouraging the chief alternative:
  35. But if the tax needed to fund the government activity creates deadweight loss greater than those benefits...
  36. What is the principal agent problem?
  37. What is an externality?
  38. There are four general types of market failure:
  39. What are important anti-trust laws to remember?
  40. What are examples of mixed goods?
  41. The public sector can be plagued by __________ -- a situation in which government falls victim to the same types of problems that cause market failure in the private economy.
  42. What is a pareto improvement?
  43. The problem of adverse selection in the used care market can be solved or partly corrected through....
  44. What are examples of asymmetric information?
  45. A bigger problem for average cost pricing is that...
  46. What are mixed goods?
  47. Look up...
  48. Both negative externalities and positive externalities...
  49. Describe the principal agent problem.
  50. With average cost pricing, regulators stove to set the price equal to cost per unit where the LRATC curve crosses the demand curve.
  51. What does tragedy of commons mean?
  52. With patents and copyrights the government tries to balance two conflicting interests:
  53. What are private goods?
  54. The adverse selection problem could be solved by the private market.
  55. What is marginal social benefit?
  56. What is contract law?
  57. The principal agent problem can be partly addressed by offering agents inceptives for good performance.
  58. The MSB curve tells us what the vaue of each degree really is when all benefits are considered.
  59. What is moral hazard?
  60. A firm whose technology would make it very coyly to reduce pollution generally...
  61. A merger leads to _____.
  62. Under competitive conditions the government uses __________ to limit market power.
  63. The demand curve lies above the MSC curve, so...
  64. What is a pure public good?
  65. Overall, efficiency is ensured by the limit on the total umber of permits issued.
  66. We can measure the nemefits given up for any degree not provided as the distance between the MSB curve and the supply curve for that degree.
  67. A direct taz on the negative externality itself (like a tax on the associated good) can bring the market to the effect quantity of the good. But taxing the externality has an added advantage:
  68. The tax shifts the supply curve until it is the same as the ___________.
  69. What is excludability?
  70. Some taxes help eliminate deadweight losses by correcting a market failure (such as a negative externality). But the government needs more revenue than it can get in markets.
  71. Why do natural monopolies exist?
  72. A market with a negative externality will produce more than the efficient quantity of the good, creating a ____________.
  73. What is the marginal social cost?
  74. A monopoly market is inefficient.
  75. The MC curves lies below the LRATC curve. This must be the case of a natural monopoly since economies of scale- the reason for the natural monopoly means the average costs are decreasing which occur only when marginal cost is less then average cost.
  76. Describe why there are patents and copyrights.
  77. What is marginal cost pricing?
  78. What is tort law?
  79. However, the Coase theorem requires that side payments can be arranged without cost-- or in practice, that the cost is so low relative to the fans or losses at stake that it does not matter.
  80. Remember that a market failure is an inefficient market-- one that eaves _____ unexploited, and thus wastes the opportunity to make people better off.
  81. What is market failure?
  82. The law also enables some types of pareto improvements to take place that would be difficult or impossible without the law.
  83. Most of economic activity is carried out among ___________.
  84. Using tradable permits to limit emissions is often called ________.
  85. The Sherman Act prohibits...
  86. The coase theorem points out that externalities do not always create market failures, and that private parties-- with proper institutional backing--
  87. The MSB curve lies above the supply curve, s those units provide greater value than their costs.
  1. a Because some government manipulation of the price is needed (via subsidy or regulation) to induce firms to move the quantity closer to the efficient level.
  2. b The Sherman Act of 1890 and the Clayton Act of 1914.
  3. c the approach is to impose a tax per unit equal to the negative externality created by each unit of the good.
  4. d The Herfindahl-Hirshman Indez (HHI) that you learned about in Chapter 11 plays a prominent role in the government's merger decisions.
  5. e The ability to exclude those who do not pay for a good or service.
  6. f :(
  7. g When a side payment can be arranged without cost, the market will solve an externality problem-- and create the efficient outcome.
  8. h A concentrated oligopoly market, or even a monopoly. The result can be higher prices for consumers.
  9. i the tendency for people to change their behavior and act less responsibly when they are protected from the harmful consequences of their behavior. When someone is protected from paying the full costs of their harmful actions and acts irresponsibly, making the harmful consequences more likely. Theft insurance: going back to check the lock. You would be less likely to go back if you knew you would not have to pay for the damages.
  10. j The full benefit provided by another unit of a good, including the benefit to the consumer and any benefits enjoyed by third parties.
  11. k A license that allows accompany to release a unit of pollution into the environment over some period of time.
  12. l one person's consumption of a unit of a good or service means that no one else can consume that unit.
  13. m Moreover, unlike limits on individual consumers and producers, tradable permits assure that total production is allocated efficiently among producers.
  14. n Occurs when rivalrous but non excludable goods are overused, to the determent of all. The commons are an area freely available to all families for grazing their animals. Fishing in international waters. The earth's atmosphere.
  15. o When everyone tries to enjoy the benefits of a noexcludable good without paying, so private firms cannot provide it.
  16. p monopolize or attempt to monopolize a market.
  17. q Government subsidies for positive externalities
  18. r :)
  19. s government failures
  20. t those units are more highly valued than their costs.
  21. u In the absence of market failure, a tax creates a deadweight loss of its own in the market that is taxed.
  22. v can sometimes work things out themselves.
  23. w :D
  24. x By requiring everyone not covered by existing programs-- healthy or not-- to purchase insurance or face a fine. The act also set up an institute to determine and recommend the most effective medical treatments, which solves the moral hazard problem.
  25. y The government creates this monopoly in order to encourage new discoveries and give incentive to innovation.
  26. z This requirement is most likely to be satisfied when 1. legal rights are clearly established and 2. the number of people involved is very small. (but in most real-world situations, a large number of people are involved.)
  27. aa :0
  28. ab If we were willing to accept the consequences. (universal health insurance)
  29. ac are inefficient.
  30. ad With this method, the price is set as low as possible-- to serve as many customers as possible-- while still covering the demand curve.
  31. ae A good that is both non rival and non excludable.
  32. af Pareto improvements
  33. ag Agreements among competitors, monopolization, and mergers
  34. ah Prevents business behavior that limits competition at the expense of consumers. Limits market power which generally means lower prices and production closer to economically efficient levels.
  35. ai When one party (the principle) hires another (the agent), who in turn can pursue goals that conflict with the principal's because of asymmetric information.
  36. aj Concerns the quality of the good. Classic example is the used car market. Market for lemons. It is a situation in which asymmetric information about quality eliminates high-quality goods from a market. The market acts as if it is selecting only the worst cars to sell. Pareto improvements in which people sell good used cars to strangers at mutually beneficial prices-- remain unexploited. The owner of the care know more about the quality of the specific car than anyone else.
  37. ak :) :(
  38. al They share features of both public and private goods.
  39. am This additional cost is like a tax on the product and like a tax, it creates its own deadweight loss.
  40. an the total benefits in the economy would shrink.
  41. ao P. 472
  42. ap anti-trust law
  43. aq Deadweight loss
  44. ar pure private good
  45. as An excludable and non rival good. Generally prodded by the market for a price though efficiently would require a price of zero. Because they are non rival, the quantity is less than efficient. An example is digital music. Music files are largely excludable.
  46. at Adverse selection, moral hazard, the principle agent problem
  47. au The natural monopoly makes zero economic profit, which provides its owners with a fair rate of return and keeps the monopoly in business.
  48. av Regulation
  49. aw trying to benefit at the expense of others.
  50. ax Setting monopolies regulated price equal to its marginal cost of production at the efficiency quantity.
  51. ay Privat individuals.
  52. az Deadweight loss definition
  53. ba Goods that share two characteristics: rival and excludability.
  54. bb Principal-agent problems
  55. bc Cap and trade
  56. bd monopoly markets
    public goods
    information assymetry
  57. be will produce less than the efficient quantity.
  58. bf The more of my costs that are covered by the insurance company, the less I care whether the doctor charges excessive fees or uses inefficient and costly procedures as part of my health care. This causes insurance premiums to rise for everyone, driving many potential customers out of the market.
  59. bg The problem occurs when the principal does not have full information about the agent's performance. This enables the agent to act in his own interest, at the expense of the principal.
  60. bh Two important examples are monopolies due to patents or copyrights and natural monopolies.
  61. bi States that when side payments can be negotiated and arranged without cost-- the private market will solve the externality problem on its own, always arriving t the efficient outcome. The allocation of legal rights determines gains the losses among the parties, but does not affect the action taken.
  62. bj the full cost of producing another unit of a good, including the marginal cost to the producer rand any harm caused to third parties.
  63. bk For example, contract law. It specifies what sorts of promises can be made, and establishes procedure for compensation if one party breaks the promise.
  64. bl Taxes and tradable permits
  65. bm Moreover, using a tax (rather than limits on individual firms and consumers) assures that the total market quantity of the good is allocated efficiently among consumers and producers.
  66. bn "contracts, combinations or conspiracies" among competing firms that would harm consumers by raising prices.
  67. bo Rules for writing and enforcing contracts. Enables pareto improvements involving future promises, such s financial contracts.
  68. bp buys permits in the market. By buying a permit at a price lower than its cost of reducing pollution by another unit, the high cost firm comes out ahead. At the same time, a firm whose technology enables it to reduce pollution rather cheaply will sell permits by giving up permits, the low-cost firm takes on the obligation to reduce its pollution further.
  69. bq Marketable public goods and common resources
  70. br It split the large firm up into smaller firms.
  71. bs One example is a contingent contract, which spells out rewards and penalties based on the agent's future behavior. (If I hire you to fix my roof, the contract requires you to fix it again if it leaks within the next six months)
  72. bt Due to economies of scale, one firm can produce for the entire market at a lower cost per unit than could two or more firms.
  73. bu Is a by-product of consumption of production that affects someone other than the buyer or seller.
  74. bv Allows those harmed by dangerous activities or products to sue for damages. Facilitates pareto improvements that require reasonable assumption of sately.
  75. bw MSC curve
  76. bx Occurs when a market-- even with the proper institutional support, is economically inefficient.
  77. by it provides little to no incentive for the natural monopoly to control costs.
  78. bz Now you can see the problem with regulators. If they set the efficient price of $30 per unit, then cost per unit (on the LRATC curve) must be greater than the price. The firm suffers a loss and in the long run it would go out of business. Therefore with marginal cost pricing, the government must also subsidize the natural monopoly-- to cover its losses with government funds.
  79. ca A non excludable and rival good. Generally available free of charge, through efficiency would require a positive price.
  80. cb an action that makes at least one person better off, and harms no one.
  81. cc A situation in which one party to a transaction has relevant information not know by the other party.
  82. cd It encourages technological change that reduces the harm from each unit of the good produced or consumed.
  83. ce In such markets, price is too high, and output is too low, to maximize the total benefits achievable: a market failure.
  84. cf :) p. 472
  85. cg providing incentive to make new discoveries and keeping prices low so that the efficient quantity will be provided.
  86. ch Reputation
  87. ci Setting a monopoly's regulated price equal to long run average cost where the LRATC curve crosses the market demand curve.