ECO 1102 Lecture Notes - Lecture 10: Market Failure, Price Floor, Price Controls

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11 Dec 2015

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ECO 1102 Full Course Notes

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Instructions - please read carefully before you begin. The exam is divided into 3 main parts. The value of each short answer question and each part of the long question is provided in parentheses. Use this as a rough guide for how much i am expecting for each question, and how much time you should spend on it. You will have a full hour and 15 minutes to complete the exam, but i would expect that it should take about an hour. You should expect to spend roughly 20 minutes on each section. The exam has 48 possible points, and it is worth 15% of your final grade. The exam questions are printed on both sides of the paper, so be sure you are not missing any questions. The short answer questions, and each part of the multi-part question, are meant to be short, but your answers also need to be complete.

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Essay questions are due at the end of the course. It is strongly recommended that you accumulate your answers as you complete each unit and don't leave them all until the last minute. Please type your responses to the following short answer/discussion questions and short problems. Although your answers need not be lengthy (generally, 1-2 short paragraphs is fine), you should be careful to respond to all parts of the question asked. It is very important that your answers demonstrate that you have made the effort to read the chapter that relates to the question and thoroughly studied the relevant topic. Answers should be submitted in complete sentence and paragraph form, and writing presentation is important. Please remember that late essay questions are NOT accepted. 1. How is a "market" defined? Distinguish between an industry and a market. (1 point) 2. Suppose a market becomes more competitive over time. What happens to the elasticity of demand for a particular firm's good as its market becomes more competitive? (1 point) 3. Why are the monopolist's and the monopolistically competitive firm's demand curves downward sloping while the competitive firm's demand curve is horizontal? (1 point) 4. Why is a perfectly competitive firm's long-run supply curve the same as its marginal cost curve above the average total cost curve? (1 point) 5. Explain why monopolists do not achieve efficiency. (1 point) 6. Another student advocates the forced break-up of large firms, such as Microsoft and AT&T, on the grounds that they have a lot of monopoly power, which they use to charge inefficiently high prices. According to Schumpeter, would breaking apart these gigantic firms guarantee consumers lower prices? Explain. (1 point) 7. Explain why firms should not shut down in the short run until price falls below average variable cost. (2 points) 8. Suppose your economics professor publicly states that she grades on a curve (i.e., the top 10% of the students get an A, the next 20% get a B, the next 40% get a C, the next 20% get a D, and the lowest 10% fail). The whole class could save itself a lot of work by agreeing privately not to study at all for the final exam and just letting the rankings thus far determine the final grades. Why might such an agreement be difficult to maintain and enforce? Which market structure, if any, is this situation most analogous to? (1 point) 9. Why do firms practice price discrimination? Is efficiency affected by price discrimination? If so, how? (1 point)

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The subject is African Economy

Would it be reasonable to restrict foreign aid so that we only give aid to nations that do not have significant levels of corruption? Why or why not? What challenges would this present and how might you suggest overcoming these challenges, if at all?

Now you will complete the assignment by preparing a short paper as follows:

In section one, identify and discuss the challenges you would identify in restricting foreign aid as described above.
In section two, give your own answer to the question, taking into account the challenges identified in section one. That is, you may answer yes or no to the initial question of whether to restrict foreign aid to nations that do not have significant levels of corruption, but your answer should address the concerns in section one regardless of which way you go.
Your short paper should not exceed two pages in length, double spaced, 10-12 pt. font, one inch margin. I will not be measuring any of these things, though, and offer them more as a guide to what I expect. If you are a bit over or under, that's okay. The substance of your answer is what I base the grade on.

A corporation operates a small server room. They work 7:00 AM to 3:00 PM, 5 days a week, and can operate for several hours without IT services. However, part of their IT application includes a database system that is sensitive to interruption; it must be shut down properly to avoid corruption. They're based in Key West which has frequent thunderstorms causing brief power "blips." Complete power failures are rare, but do happen two or three times a year and last for several hours. Describe what should they do with respect to electric power protection. CalCo is a mid-sized corporation that sells music and movie downloads over the Internet. They're in the same building as A corporation and have the same electric power conditions. CalCo's CFO that each hour of web server downtime costs the company $2,000 in profit from sales. Describe what CalCo should do with respect to electric power protection. If your recommendation is different from A corpooration's, explain why. state any assumptions you have made. Using the cost-benefit analysis method described in the lecture, estimate how much money CalCo should spend on power protection. You will have to make several assumptions to do this. Your answer should contain an "assumptions" section in which you list them. Justify each assumption in one or two sentences.

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ECO 1102 Lecture Notes - Lecture 10: Market Failure, Price Floor, Price Controls

ECO 1102 Full Course Notes

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