Question

Q1. Water supply in small towns is a natural monopoly making an economic loss. Draw a diagram clearly identifying an economic loss for this monopoly and explain how the government can address the issue of market failure in this case.

Q2. Using a diagram, explain why the government doesn’t want competition in urban water supply (hint: LRAC).

Q3. Use a demand and supply diagram to explain what happens to the equilibrium quantity and the equilibrium price of bicycles if the government reduces the tax for bicycle manufacturers and, at the same time, the population is growing.

Q4. Draw a production possibilities frontier with increasing opportunity costs and a production possibilities frontier with constant opportunity costs. Explain the differences between them.

Q5. What is the major difference between accounting profit and economic profit?

Q6. What are the sources of market failure? How the governments address market failure (separately for each source)?

Answer 1

00 D 2 3 Explanak en: 12 3 3 6 30 ao 3