Assignment

1. Often times many students are completely surprised by the sometimes counterintuitive conclusions of economic science. For example, why raising the minimum wage for lower-skilled workers to improve their earnings prospects actually reduces their opportunities and makes them worse off (the policy creates more unemployment in the very demographic that the policy maker is trying to help). Another one we discussed extensively was the "broken window" fallacy, or the proposition that destruction creates economic growth. There are countless others. Try your hand at explaining the one below.

We talked quite a bit about textbook monopoly theory and its potential weaknesses. Why does the theory appear to be inapplicable (that is, why doesn't there seem to be much evidence in the real world for the existence free market monopolies)? (I'm looking for a very specific answer, as we discussed it often.)

2. How would the assumption of perfect information in the theory of perfect competition render advertising utterly ineffective?

3. Many economists argue that the textbook model for analyzing and regulating monopolies is inappropriate for economic policy theorists even for the most egregious historical examples of monopoly. In 100 words or less, explain his argument using both your understanding of his position and your understanding of the textbook monopoly model that you just learned.

4- Why is natural monopoly theory a poor justification for government authorities to control and protect public utilities (water, sewer, cable television, electricity, phone service, etc.) by granting exclusive production rights?