Essay micro 1

681 Words3 Pages
Micro January 14, 2015 1. The purpose of antitrust policy is to promote __competition among firms_____, which leads to lower __price for customers______. Explain why this is so? The purpose of antitrust policy is to promote competition, which leads to lower prices. If a company had the power of price control that comes with being a monopoly, they would profit by picking the quantity/price that equals the highest revenue for their company. This would be likely a lower quantity and higher price than would prevail if there was competition. Combining operations could lead to greater efficiency. Cost savings could come by combining HR or accounting depts. The main problem with cost savings is that a monopoly does not have the pressure…show more content…
The seller does know, because they have lived there long enough to know what is in good shape and what is in bad shape on the house. An example of the buyer knowing more than the seller is in the antique market, because the buyer may know more history about what they are buying than the seller. The seller may not have put as much time into researching the products. 4. Critical Thinking: All states, of which I am aware, require automobile owners to insure their vehicle. Yet, studies show that having insurance actually increases the likelihood of an accident and increases the likelihood of a car / bicycle accident. Discuss why this is so. Who is protected and who is harmed by required automobile insurance? The reason that having insurance increases the likelihood of an accident is due to the moral hazard associated with car insurance. This is a situation in which one side of an economic relationship takes undesirable or costly actions that the other side cannot observe. For instance, Mary’s car insurance company doesn’t know that she occasionally texts while driving because they can’t physically see her driving. Mary does this because she assumes that if anything happens, she is insured and she will be able to financially cover the costs of any accident. It takes the responsibility off of Mary (slightly) and puts it on the insurance company which makes Mary act more recklessly. The person driving the vehicle is
Open Document