Question

Choose the most accurate statement and explain why it is accurate. Also explain why you did not choose the other statements. Keep your answer under ½ page. The most accurate statement is _______________.

a. The Law of Demand applies in today’s economy as much as it has in the past.

b. Worker safety regulations encourage the Zamzownian externality, often result in the McCoskey Paradox, and always result in a Malleyesque decrease in economic surplus. As such, they should be eliminated in favor of a market-based approach.

c. Negative externalities are better known as dominated strategies.

d. Economic Surplus is an abstract concept with no practical application.

e. Natural monopolies exist in great numbers because they can be of any size.

Answer 1

Correct Answer:

A

Explanation:

The most accurate and correct statement is alternative A. Law of demand tells the relationship between price and quantity demanded. It is the same today as it was yesterday. People demanded less quantity with increase in price and vice versa. It means that law of demand makes demand curve to be downward sloping and it is always the case, in different time periods. In contrast to it, alternative B is not correct, because workers safety regulation is for the people who work and it cannot be replaced using market based system. Alternative C is also incorrect, because negative externalities are not dominant, rather it is an approach that brings external cost to the society. Its persistence leads to the market failure, hence government needs to correct it by putting some taxes. So, it should not be treated as dominant strategy. Alternative D is not correct, because economic surplus takes place. We plan to buy goods and maximum price we could pay, but market price is lower than that. So, surplus is created in reality. Alternative E is not correct, because natural monopoly is only created, when the size is huge, investment is in big amount and economy of scale. So, a natural monopoly is not for all the sizes.