Why do some utilities have an incentive to exaggerate their costs of production?
What will be an ideal response?
Because utilities are generally allowed to charge prices that cover their average cost of production, a utility might want to incur higher than normal costs (maybe from lush carpets, hunting lodges, tickets to sporting events, and so forth). If the utility exaggerates its costs, the regulators are likely to simply order higher rates to cover the higher costs, and so the utility executives can enjoy benefits (the carpet, hunting lodge, sporting events) without incurring any personal costs.
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If all education in the United States were provided by private, tuition-charging schools,
A) too much education would be consumed. B) too little education would be consumed. C) the efficient level of education would be provided. D) the government would provide both students and schools with vouchers. E) education would no longer have an external benefit.
The banking system is able to make new loans equal to
A) total legal reserves of the system. B) total excess reserves of the system. C) total required reserves of the system. D) a multiple of total excess reserves of the system.