Which of the following is a true statement regarding public interest theory? a.

Question

Which of the following is a true statement regarding public interest theory? a. According to public interest theory, political representatives act to pursue socially ideal outcomes. b. Empirical evidence supports public interest theory c. According to public interest theory, political representatives are influenced by lobbyists. d. According to public interest theory, there exists both a demand and a supply for regulation. e. None of the above. 1. Which of the following is true regarding double double marginalization? a. It may provide a solution to double marginalization b. It is twice as bad as double marginalization c. It involves four mark-ups instead of the two mark-ups associated with double marginalization d. It always decreases welfare for both firms and consumers e. None of the above 2. Why do natural monopolies incur losses if they price at marginal cost? a. Other firms enter the market at this price b. Long-run average cost is decreasing (economies of scale) c. The natural monopoly is not large enough to act like a competitive firm d. Deadweight loss occurs, which must be subsidized through taxes e. Fixed costs are very low so the firm cannot earn a return on its investments Which of the following may provide information regarding the demand for reliability? a. Two-part pricing b. Interruptible service pricing c. Block pricing d. Continuous path pricing e. Essential pricing 4 5. Which of following industries would you expect to not use peak-load pricing? a. Electricity b. Resort hotels in Hawaii c. Heart medication d. Holiday decorations e. Restaurants

Explanation / Answer

1). A). According to public interest theory, political representatives act to pursue socially ideal outcomes

Public interest theory was developed by A.C. Pigou (1932). The author believed that the regulations are prepared in the public interest when they are demanded by the public for correcting inefficient practices. Regulations are understood to do good to the whole society rather than any individual’s interest.

2). E). None of these

There is no such term as double double marginalization

3). C). Monopolies are not large large enough like a competitive firm

This is because a monopoly faces a market demand curve. Thus, the monopoly has to lower its prices in order to sell more. If the monopoly sells at the same price, it will have to incur losses.

4). Don' know

5). C) Heart medication

This is because peak load pricing is usually used by firms where higher rates are charged during higher demands

In the options given, there can be seasonal higher demands for electricity, resorts in hawaii, holiday decorations and restaurants. However, heart diseases do not have any seasonal demand

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