Extra Credit 1. A “natural monopoly” exists when A company creates a monopoly because it has an important patent A company naturally creates a monopoly because it was more innovative than other competitors One company can serve a market less costly than two or more firms. 2. True or False? Most public utilities are considered to be natural monopolies. 3. The presence of very large fixed costs and relatively low variable costs typically results in A. Average costs declining throughout the relevant range of demand B. A natural monopoly C. Both A and B D. Neither A nor B 4. An example of a Public Utility would be Walmart El Paso Electric Co. Congress Microsoft 5. The Public Interest Theory of regulation suggests Government regulates to promote social economic welfare (as economists would prescribe) Government regulates to promote their own welfare Government should not regulate at all None of the above 6. True or False? Stigler’s Economic Theory of Regulation suggests that people in government are self-interested individuals. Suppose a power plant generates an additional 10 mWh of electricity for a profit of $100,000. This additional production also creates pollution damages to others equivalent to $120,000. From society’s view, the efficient decision is not to generate the additional power. 7. True or False? Under the Coase Theorem without transactions costs, the efficient decision will be made when the public has the right to receive damage payments. 8. True or False? Under the Coase Theorem without transactions costs, the efficient decision will be made when the power plant has the right to pollute. 9. True or False? If the market causing a negative externality has a property right to do so, the Coase Theorem would suggest that those being harmed would organize and make a payment to stop or limit the market activity. 10. The presence of transaction costs in the “real world” may Give a rationale for government regulation. Ensure that the Coase Theorem efficiency results always prevail. Make it easy to organize people against a polluting company. 11. Why is it rational for groups affected by regulation to expend resources to influence regulatory decisions? Government’s power of coercion may be used to redistribute wealth between groups of people. Government will do what is best for the public interest. Government regulation should be eliminated. 12. “Taxation by Regulation” (Richard Posner) suggests that regulation is used for what purpose? Help airlines and other regulated industries. Cross-subsidize certain markets or market segments. Increase the general fund (tax revenues) directly collected by the government. Protect the environment. 13. True or False? The “Capture Theory” of regulation is an extreme (polar) case of the Economic Theory of Regulation. 14. Which of the following is not an assumption under Professor Stigler’s “Economic Theory of Regulation”? All actors in a political-economy are self-int.

1. Extra Credit
1. A “natural monopoly” exists when
A company creates a monopoly because it has an important
patent
A company naturally creates a monopoly because it was more
innovative than other competitors
One company can serve a market less costly than two or more
firms.
2. True or False? Most public utilities are considered to be
natural monopolies.
3. The presence of very large fixed costs and relatively low
variable costs typically results in
A. Average costs declining throughout the relevant range of
demand
B. A natural monopoly
C. Both A and B
D. Neither A nor B
4. An example of a Public Utility would be
Walmart
El Paso Electric Co.
Congress
Microsoft

2. 5. The Public Interest Theory of regulation suggests
Government regulates to promote social economic welfare (as
economists would prescribe)
Government regulates to promote their own welfare
Government should not regulate at all
None of the above
6. True or False? Stigler’s Economic Theory of Regulation
suggests that people in government are self-interested
individuals.
Suppose a power plant generates an additional 10 mWh of
electricity for a profit of $100,000. This additional production
also creates pollution damages to others equivalent to $120,000.
From society’s view, the efficient decision is not to generate the
additional power.
7. True or False? Under the Coase Theorem without
transactions costs, the efficient decision will be made when the
public has the right to receive damage payments.
8. True or False? Under the Coase Theorem without transactions
costs, the efficient decision will be made when the power plant
has the right to pollute.
9. True or False? If the market causing a negative externality
has a property right to do so, the Coase Theorem would suggest
that those being harmed would organize and make a payment to
stop or limit the market activity.
10. The presence of transaction costs in the “real world” may
Give a rationale for government regulation.
Ensure that the Coase Theorem efficiency results always
prevail.

3. Make it easy to organize people against a polluting company.
11. Why is it rational for groups affected by regulation to
expend resources to influence regulatory decisions?
Government’s power of coercion may be used to redistribute
wealth between groups of people.
Government will do what is best for the public interest.
Government regulation should be eliminated.
12. “Taxation by Regulation” (Richard Posner) suggests that
regulation is used for what purpose?
Help airlines and other regulated industries.
Cross-subsidize certain markets or market segments.
Increase the general fund (tax revenues) directly collected by
the government.
Protect the environment.
13. True or False? The “Capture Theory” of regulation is an
extreme (polar) case of the Economic Theory of Regulation.
14. Which of the following is not an assumption under Professor
Stigler’s “Economic Theory of Regulation”?
All actors in a political-economy are self-interested individuals
who make decisions to promote their own welfare.
Public Utilities are Natural Monopolies.
Regulation is a power of the government to coerce individuals
and firms through legally binding powers.
The power of coercion can be used to redistribute wealth from
one group to another.
15. Why may a firm or an industry seek to be regulated?
A. To obtain direct subsidies
B. Control over competitive entry
C. Control over substitute services
D. All of the above

4. 16. Which one of the following is not a factor affecting the
level of political pressure exerted by an interest group (as stated
by Professor Stigler):
Level of education - the more education within the group, the
greater the effectiveness
Degree of self-interest – the more there is to gain or lose, the
greater the expenditure.
Size of the group – greater the number of individuals, the
greater the organizing costs, greater diversity, and free rider
problems.
Group Homogeneity – similar goals among the individuals in
the group.
17. National Defense is an example of a public good because:
There is no way to force someone to pay for it except through
government taxation
It is very important to society
Private markets would not provide sufficient quantities of
National Defense.
A and B
A and C
Negative Externality
Two possible marginal social cost curves when a negative
externality exists (A and B).
P
Q

5. Marginal Social
Benefit (demand)
Marginal Private Cost
(supply)
Marginal Social Cost
A
B
0
18. Based on the negative externality diagram, the best
government response to the situation described by curve B, is to
Implement a per unit tax
Implement a per unit subsidy
Make the market illegal, thereby banning all sales
All of the above.
19. Based on the negative externality diagram, the best
government response to the situation described by curve A, is to
Implement a per unit tax
Implement a per unit subsidy
Make the market illegal, thereby banning all sales
All of the above.
20. Nutrition labels, warning labels, and financial disclosure to
investors are government requirements intended to solve what
market failure?
Imperfect Information
Public Goods
Natural Monopoly
Imperfect Competition

6. 21. The economic rationale for government subsidization of
education is:
It is a pure public good.
It is very important to society.
There are positive externalities.
None of the above.
22. If a company lobbies the government to limit the number of
business licenses issued, and they do so to prevent competition
and create monopoly:
This is an example of natural monopoly
This is an example of a public good
This activity is legal
This would create a negative externality.
23. One rationale for having a special tax per pack of cigarettes
is that cigarette smoking creates a negative externality for
others. These special taxes vary greatly from state to state,
because
The individual state governments have precisely calculated the
dollar amount of the negative externality in each state and it
tends to differ from state to state.
It is probably viewed as an easy additional tax revenue source
in some states.
Some states have more sinners than other states.
Cigarette smoking has been shown to lead to harder, illegal
drugs, and those states with bigger problems with illegal drug
markets tax cigarettes higher.
Examples of Market Failures: Natural Monopoly, Externalities,

7. Public Goods. Understand possible government responses to
each of these.
24. A pure Public Good
A. will not be provided in a private market.
B. has no value.
C. can be a toll road.
D. All of the above
25. Nonrivalry in Consumption refers to
A. not enough supply-side competition.
B. a characteristic of illegal drug markets.
C. enjoyment of the good does not deplete amount left for
others.
D. consuming a large amount of national defense may
prevent war.
26. Nonexclusion
A. is a characteristic of public goods.
B. is the inability to prevent consumption by
someone.
C. causes a free-rider problem.
D. All of the above.
Questions 27 - 34: Per Unit Tax on Suppliers
Supply

8. Demand
Supply w/ tax
$4.50
$7.00
$5.00
Price
Output
A
B
C
D
E
F
27. The level of the tax is
A. $0.50; B. $2.50; C. $2.00; D. $7.00
28. The tax burden borne by the customers is
A. $0.50; B. $1.50; C. $2.00; D. $7.00
29. The equilibrium price after the tax is
A. $0.50; B. $1.50; C. $2.00; D. $7.00
30. True or False? If demand was less elastic (steeper), the tax
burden on the customers would be more.
31. The tax burden borne by the suppliers is
A. $0.50; B. $1.50; C. $2.00; D. $7.00
32. True or False? If the same per unit tax was levied on the
customers rather than on the suppliers, the demand curve shifts
down by the amount of the tax.
33. With this change in government policy, the tax burden to the

9. customers
A. Decreases
B. Increases
C. Stays the same.
34. The social welfare loss caused by the tax is equal to area:
A. ABC; B. BCEF; C. CDE
Negative Externality: Questions 35-37.
P
Q
Marginal Social
Benefit (demand)
Marginal Private Cost
(supply)
Marginal Social Cost
$7
$5
20
30
$4
35. In the diagram above, the efficient price/quantity

10. combination is
A. $4/20; B. $7/20; C. $5/20; D. $5/30
36. Without government intervention, the private buyers and
sellers in this market select
A. $4.50/20; B. $5/20; C. $6/20; D. $5/30
37. Government could realize the efficient combination by
imposing a per unit tax equal to:
A. $5; B. $7; C. $1.50; D. $3
Negative Externality: Questions 44-46.
Output
Marginal Social
Benefit
Marginal Private Cost
Marginal Social Cost
$26
$22
$15
$0
5,000
38. The amount of externality per unit of output is
A. $11; B. $4; C. $7; D. $9

11. 39. The socially efficient output is
A. zero; B. 5,000; C. infinite
40. True or False? The government should consider making
this market illegal rather than imposing a tax.
Movie Analysis Paper
The Proposal
You are to view the movie The Proposal @ 2009 and take note
of the communication concepts that are portrayed in the movie
(You may not pick another movie). It is your goal to connect
some of the interpersonal communication theories that we have
discussed over the course of the semester thus far (Chapters 7-
10). After you have viewed the movie, I want you to think about
which interpersonal concepts you want to write about.
In a 4-6 page paper, you must apply 5 major variables which are
listed at the bottom of this page (meaning major concepts in
your book like Conflict Management Styles) that are related to
interpersonal communication that were portrayed in the movie.
You should address two concepts related to each variable (such
as compromise and competition). This is a formal paper and I
expect it to be clearly organized and structured.
The introduction should include a short summary of the movie
plot (DO NOT cut and paste a movie review) and which
character(s); you will be applying your variables to and a clear
thesis statement including the variables to be applied.
In the body, for each variable, spend some time defining and
explaining each variable and concept. Be sure to cite any
sources you use including your textbook (must cite your

12. textbook when giving definitions for terms). After you give the
reader a sense of WHAT the interpersonal communication
variable is about, I would like you to apply the variable to the
movie. I want you to cite specific examples/scenes from the
movie for each of the two concepts you address for each of your
five major variables required. Assume the reader of the paper
has not taken an interpersonal course or seen the movie. Explain
and define everything.
For the conclusion, clearly restate the variables that were
covered in your paper. Also discuss any conclusions you can
draw about human nature and the characters portrayed in the
movie that you used as examples.
This paper is to be typed, double-spaced, using 12 point font
and 1"margins. Assignments are evaluated on content and form,
which includes, but is not limited to organization, spelling,
grammar, punctuation, and clarity of expression. Excessive
typographical errors will result in a lower grade. Be sure to
include a reference page to outline any sources you may have
used. All assignments must be submitted as MS Word
documents if e-mailed. This paper is worth 100 points and all
papers are due on the date indicated in the syllabus. Rough
drafts (please send through email) and early submissions are
welcome. NO LATE PAPERS WILL BE ACCEPTED!!
The variables are on the following page:
Cite Textbook when defining all terms!
Nonverbal Communication Codes (define this and the concepts
your pick)
Pick 2 Concepts: Eye contact, facial expression, vocal cues,
personal space, territory, touch, and appearance.
Conflict Management Styles (define this and the concepts your
pick)

13. Pick 2 Concepts: Avoidance, competition, collaboration,
compromise, accommodation.
Elements of Attraction (define this and the concepts your pick)
Pick 2 Concepts: Proximity, Physical appearance,
Credibility, competence and intelligence, Self-disclosure and
reciprocation of liking, Similarities, and Differences and
complementary needs.
Relational Escalation/De-escalation (define this and the
concepts your pick)
Pick 2 Concepts: Preinteraction awareness, acquaintance,
exploration, intensification, intimacy, turmoil or stagnation,
deintensification, individualization, separation, postseparation
effects.
Types of Deception (define this and the concepts your pick)
Pick 2 Concepts: Deception by omission, white lies,
exaggeration, baldfaced lies.
Movie Analysis Paper
The Proposal
You are to view the movie The Proposal @ 2009 and take note
of the communication concepts that are portrayed in the movie
(You may not pick another movie). It is your goal to connect
some of the interpersonal communication theories that we have
discussed over the course of the semester thus far (Chapters 7-
10). After you have viewed the movie, I want you to think about
which interpersonal concepts you want to write about.
In a 4-6 page paper, you must apply 5 major variables which are
listed at the bottom of this page (meaning major concepts in
your book like Conflict Management Styles) that are related to
interpersonal communication that were portrayed in the movie.

14. You should address two concepts related to each variable (such
as compromise and competition). This is a formal paper and I
expect it to be clearly organized and structured.
The introduction should include a short summary of the movie
plot (DO NOT cut and paste a movie review) and which
character(s); you will be applying your variables to and a clear
thesis statement including the variables to be applied.
In the body, for each variable, spend some time defining and
explaining each variable and concept. Be sure to cite any
sources you use including your textbook (must cite your
textbook when giving definitions for terms). After you give the
reader a sense of WHAT the interpersonal communication
variable is about, I would like you to apply the variable to the
movie. I want you to cite specific examples/scenes from the
movie for each of the two concepts you address for each of your
five major variables required. Assume the reader of the paper
has not taken an interpersonal course or seen the movie. Explain
and define everything.
For the conclusion, clearly restate the variables that were
covered in your paper. Also discuss any conclusions you can
draw about human nature and the characters portrayed in the
movie that you used as examples.
This paper is to be typed, double-spaced, using 12 point font
and 1"margins. Assignments are evaluated on content and form,
which includes, but is not limited to organization, spelling,
grammar, punctuation, and clarity of expression. Excessive
typographical errors will result in a lower grade. Be sure to
include a reference page to outline any sources you may have
used. All assignments must be submitted as MS Word
documents if e-mailed. This paper is worth 100 points and all
papers are due on the date indicated in the syllabus. Rough
drafts (please send through email) and early submissions are

15. welcome. NO LATE PAPERS WILL BE ACCEPTED!!
The variables are on the following page:
Cite Textbook when defining all terms!
Nonverbal Communication Codes (define this and the concepts
your pick)
Pick 2 Concepts: Eye contact, facial expression, vocal cues,
personal space, territory, touch, and appearance.
Conflict Management Styles (define this and the concepts your
pick)
Pick 2 Concepts: Avoidance, competition, collaboration,
compromise, accommodation.
Elements of Attraction (define this and the concepts your pick)
Pick 2 Concepts: Proximity, Physical appearance,
Credibility, competence and intelligence, Self-disclosure and
reciprocation of liking, Similarities, and Differences and
complementary needs.
Relational Escalation/De-escalation (define this and the
concepts your pick)
Pick 2 Concepts: Preinteraction awareness, acquaintance,
exploration, intensification, intimacy, turmoil or stagnation,
deintensification, individualization, separation, postseparation
effects.
Types of Deception (define this and the concepts your pick)
Pick 2 Concepts: Deception by omission, white lies,
exaggeration, baldfaced lies.