A common feature of regulated industries is cross-subsidization, which is a situation when one group of customers pays prices above costs while another group of customers pays prices below costs. The one group is subsidizing the other group
Is this practice more consistent with the capture hypothesis or the share-the-gains, share-the-pains theory? Explain.
Cross-subsidization is more consistent with the share-the-gains, share-the-pains theory. The capture hypothesis can explain why the firms would be able to charge prices above costs to the one group but not why they have to charge prices below costs to another group. But the share-the-gains, share-the pains theory explains this by saying the subsidized group of customers has been able to influence the regulators so that their costs are not so great to themselves.
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To maintain a fixed exchange rate via intervention in the markets, a government should:
a. be ready to crack down on illegal traders. b. be ready to buy the home currency with foreign currency reserves when the home currency's value declines. c. be ready to sell the home currency when the home currency's value declines. d. be ready to borrow funds from international banks when the home currency's value declines.
In which phase of the business cycle does a recession occur?
A) contraction B) peak C) recovery D) expansion