Chapter 10

Question 1

natural monopoly

Answer 1

when one company serves the entire market

average total costs decrease as level of output increases

Question 2

market failure

Answer 2

when markets produce inefficient outcomes

Question 3

2 government policies to reduce market failure

Answer 3

1. public ownership
2. regulation

Question 4

crown corporations

Answer 4

government-owned business with economies of scale

Question 5

public ownership

Answer 5

these are crown corporations

Question 6

disadvantages of public ownership

Answer 6

they lack competitive pressure

Question 7

regulation

Answer 7

this is when private businesses are regulated by the government

Question 8

how do governments regulate private businesses?

Answer 8

governments set prices of products using a technique called “rate of return”

Question 9

rate of return

Answer 9

a technique used by the government to set prices for private businesses being regulated

the price set allows the business to cover average total costs

Question 10

nash equilibrium

Answer 10

when each player in a game makes their own best choice given the choice of the other player

Question 11

collusion

Answer 11

illegal practices done to fool others

Question 12

cartels

Answer 12

a group of businesses that maintains high prices and restricts competition

Question 13

3 actions governments take against cartels

Answer 13

1. The Competition Act
2. criminal offences
3. civil offences

Question 14

The Competition Act

Answer 14

an act to maintain and encourage competition

Question 15

disadvantages of The Competition Act

Answer 15

competitive behavior is an attempt to increase prices and gain the market power of a monopoly

It is hard to distinguish between this and The Competition Act

Question 16

criminal offences

Answer 16

prison time is used to discourage cartels

Question 17

civil offenses

Answer 17

these are actions taken against non-criminal offences such as mergers

Question 18

mergers

Answer 18

combination of two businesses

Question 19

actions taken against mergers

Answer 19

mergers are reviewed by a competition tribunal

Question 20

two things the competition tribunal considers when taking action against mergers

Answer 20

1. if the merger is decreasing competition in the market
2. if the merger is increasing efficiency

Question 21

terms for mergers to be approved by the competition tribunal

Answer 21

the merger is allowed if expected benefits are greater than expected costs.

the merger is denied if expected costs are greater than expected benefits

Question 22

caveat emptor

Answer 22

“let the buyer beware”

buyers are responsible for checking the quality of a product before purchase

Question 23

public-interest view of government regulations

Answer 23

this is when the actions taken by the government to reduce market failure benefit the public

Question 24

capture-view of government regulations

Answer 24

this is when the actions taken by the government to reduce market failure benefit the business but not the public

Question 25

government failure

Answer 25

this is when governments fail to serve the public interest