The reason externalities distort the allocation of resources is that
a. too few goods are usually produced.
b. firms often go out of business because of the externality.
c. a firm's private costs do not reflect the social cost of production.
d. regulating externalities uses scarce resources.
c
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The long-run supply curve in a constant-cost, perfectly competitive industry is
A) perfectly inelastic. B) upward sloping. C) downward sloping. D) perfectly elastic.
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. What will be an ideal response?