Question

Die Week 7 Discussion There are two discussion questions. You will need to answer both questions in order to receive full credit. Please review the Discussion & Peer Review Rubric. Discussion Questions: 1. Private colleges of the same caliber generally charge roughly the same tuition. Would you characterize these colleges as a cartel type of oligopoly? 2. Suppose an air-quality law is passed that requires 3.75 percent of all the cars sold to emit zero pollution What would be the likely impact of this law? Can you think of any way in which this law might actually increase pollution rather than decrease it? • How might an economist suggest modifying this law to better achieve economic efficiency? Discuiceinn . Den

Answer 1

1. There are few private colleges in the market. Each of the colleges more or less offer the same facility, teaching quality and other support services to the students pursuing higher education. Each of the college is very well aware that for the price and market share, there is a strong interdependence amongst them. Realizing this fact, the private colleges come to a mutual decision in terms of price and market share by forming cartels. Cartel is a mutual body formed by them agreeing on division of market share share equally and charging the same price. Thus the price war reduces amongst them.

Thus we can say that Private colleges belong to an oligopolistic market structure and thus they form cartels in order to have rational price and market share and reduce the chances of price war amongst them.

2. Such kind of air quality law whcih states that 3.75 percent of all the cars sold to emit zero pollution, would actually increase the chances of pollution. This would give a flexibility to the car manufacturers to sold rest of the 96% cars at a desired pollution level. Thus the remaining 96% cars would emit high pollution level. Thus it is desirable that government should put a condition on the minimum level of pollution level by all the cars sold rather than putting a cap of the number of cars sold with zero pollution level. For instance, The rule should be that the pollution emitted by all the cars sold should be less than 15-20%. This would reduce the overall level of pollution emitted in the air.