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Microeconomics Question from Walter E. Williams:Edit

Give very brief (one paragraph) answers to the following:

  • (a) Collusions have the natural tendency to break down.
  • (b) Cost minimization is the general criterion of economic behavior.
  • (c)Laissez faire capitalism encourages deceitful advertising, dishonesty, and faithlessness. Comment.
  • (d) Is a person who loses his job through no fault of his own also unemployed thereafter through no fault of his own? Explain.

AnswersEdit

  • (a) Firms have an incentive to cheat to gain extra profits and market share. Collusions are difficult to monitor. Can’t prevent firms outside the cartel from competing, and can’t compel them to join the cartel. Small and large firms have different cost structures making quantity agreement difficult.
  • (b) The general criterion for consumers is utility maximization, and for producers is profit maximization. Cost minimization alone does not guarantee profit. One can cost minimize by merely foregoing production.
  • (c) See WEW-031 part c
  • (d) A person who loses his job through no fault of his own could be said to be involuntarily unemployed. However, if he remains unemployed, then his unemployment is voluntary. This is possible due to the infinite wants and that his reservation wage is higher than the market wage. At less than his reservation wage, he prefers leisure to work.

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WEW Questions 21-40
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