1. For markets to operate efficiently, the people making consumption and production decisions must bear the full _____and reap the full _____from their decisions.
2. Pollution from a paper mill is an example of market failure because people living downwind of the mill bear part of _____of production.
3. Some markets are dominated by a few large firms, leading to high and _____small_____.
4. By promoting competition, the government generates _____product prices.
5. Pirating Textbooks? The government protects intellectual property rights by enforcing copyright rules on textbooks. Suppose an organization scans the pages of this and other introductory economics textbooks and makes them available for downloading at no charge.
a. As a current textbook consumer, would you be better off or worse off?
b. What are the implications for the next generation of economics students?
6. Unemployment Insurance. Each worker employed by Risky Business has a 20 percent chance of losing his or her job in the next year. Each worker employed by Safe Business has a 2 percent chance of losing his or her job. You manage an insurance company that provides a lump sum of $10,000 to each unemployed worker.
a. What is the minimum amount you would charge Risky Business for each employee covered by the unemployment policy?
b. What is the minimum amount you would charge Safe Business for each employee covered by the unemployment policy?
c. Suppose you charge the same premium to both businesses. The companies have the same number of workers and are required to purchase unemployment insurance. What is the minimum amount you would charge?