If perfect competition is a market where firms have no market power and they simply respond to the market price, __________ is a market with no competition at all, and firms have a great deal of market power.

Monopoly

________________ are the legal, technological, or market forces that discourage or prevent potential competitors from entering a market.

Barriers to entry

where the barriers to entry are something other than legal prohibition.

Natural Monopoly

where laws prohibit (or severely limit) competition.

Legal Monopoly

A _______ _______ occurs when the quantity demanded is less than the minimum quantity it takes to be at the bottom of the long-run average cost curve.

natural monopoly

A ______ gives the inventor the exclusive legal right to make, use, or sell the invention for a limited time.

Patent

A __________ is an identifying symbol or name for a particular good, like Chiquita bananas, Chevrolet cars, or the Nike “swoosh” that appears on shoes and athletic gear.

Trademark

A ___________, according to the U.S. Copyright Office, “is a form of protection provided by the laws of the United States for ‘original works of authorship’ including literary, dramatic, musical, architectural, cartographic, choreographic, pantomimic, pictorial, graphic, sculptural, and audiovisual creations.”

Copyright

Copyright protection ordinarily lasts for the life of the author plus 70 years.

True

Even if a company does not have a patent on an invention, competing firms are not allowed to steal their secrets.

Trade Secrets

Taken together, we call this combination of patents, trademarks, copyrights, and trade secret law __________ ___________ because it implies ownership over an idea, concept, or image, not a physical piece of property like a house or a car.

Intellectual Property

in which a firm uses the threat of sharp price cuts to discourage competition.

predatory pricing

When is a firm considered to have a monopoly?

A pure monopoly is a firm without competition. There are no clear tests for determining whether a firm is a monopoly. All firms, even those traditionally considered monopolists, face competition. While pure monopolies don’t exist, economists argue that the fewer substitutes there are a for a firm’s product the more monopolistic the firm is.

What are barriers to entry?

Anything that prevents entry or makes entry relatively expensive is called a “barrier to entry”. 1) the government, 2) unions, 3) control of a vital resource, 4) incompatibility, 5) economies of scale, and 6) intellectual property.

Why are government-created barriers to entry so strong?

Government-created barriers work extremely effectively at protecting monopolists’ markets because a businessperson who would climb over such a barrier risk imprisonment.

What are some examples of how control of a vital resource leads to monopoly?

In ancient China kept a monopoly on silk by executing anyone caught exporting silk-making technology. The silk-making technology was smuggled from China to India in the headdress of a Chinese princess traveling to India to marry a prince. A vital resource in the wool making industry (during the 1400s) was the chemical alum which was used to dye the wool. The only source of high quality alum was the Ottoman Empire which earned monopoly profits from the sale of alum. In 1490 a large deposit of alum was discovered near Rome which was taken under control of the Pope. The Pope attempted to establish a monopoly by declaring that any Christian caught using Ottoman alum would be excommunicated. Unfortunately, for the Pope, Christian wool makers continued buying Ottoman alum because the price of Ottoman alum was cheaper than Roman alum.

How can software incompatibility provide a barrier to entry?

A Microsoft operating system has hundreds of programs (e.g., Word, Explorer) that are designed for that operating system. Even if a new operating system enters the market, the incompatibility of your existing software programs with a new operating system provides a barrier to entry into the operating system market.

How can sports leagues use incompatibility to erect a barrier to entry?

To enter a sports league requires the existing teams to play you. But they are unwilling to play against your new team. In a sense your new team is incompatible with other teams because existing teams won’t let you play against their teams.

How can economies of scale create a barrier to entry?

Economies of scale results in LR average total costs decrease as output increases. In markets with economies of scale, once one firm attracts most of the customers, it will have low average total costs compared to other firms. This makes it difficult for new to challenge firms with low average costs. Thus, economies of scale can protect monopolies from competition.

What are natural monopolies?

Monopolies based on economies of scale are called “natural monopolies”. The presence of high fixed costs, combined with constant marginal costs, create decreasing average total costs, resulting in an industry with economies of scale. Utilities that sell water or electricity are often natural monopolies.

Why do copyright laws promote the publication of books?

Without copyrights, few textbooks would ever get published. Because writers receive copyrights on their creations and no one but the copyright’s holder can legally sell the copyrighted-protected work. While awarding a monopoly on their book, they must still complete with books published by other authors. The copyright provides a legal right for the author to demand payment from those who would use your property.

Why do patents promote innovation?

Patents are similar to copyrights for inventions in that they award the exclusive right, for a given number of years, to sell the patented item. Patents confer benefits on innovators proportional to the social benefit of the invention. Patents create an incentive that rewards self-interested inventors to work for the benefit of society.

Can monopolists circumvent the Law of Demand?

No. The Law of Demand constrains a monopolist’s price-setting powers because to increase sales it must lower price. A monopolist can choose price, but once the price has been set the demand curve determines how much consumers buy.

Why must a monopolist who can’t price discriminate give a discount to old customers if it wants to sell to new customers?

In order to gain new customers by lowering prices means that old customers will also receive the discount. A monopolist output does influence the market price so when a monopolist expands output it must charge lower prices to all customers.

How will a monopolist set output?

A monopolist will produce more goods so long as its marginal revenue is greater than its marginal cost. A monopolist will produce fewer goods so long as marginal revenue is less than marginal cost. Taken together, a monopolist will set an output so that marginal revenue equals marginal cost.

Do monopolists produce at the low point (minimum cost) on their average total cost curves?

NO. There are no pressures that will push a monopolist to produce at the low point on their average total cost curve.

How can competition reduce the deadweight loss of a monopolist?

The best cure for deadweight loss of monopoly is competition. Competition results in lower prices and expands output. This will reduce deadweight losses.

How can potential competition reduce the deadweight loss of a monopolist?

Sometimes the threat of competition can induce a monopolist to expand output, thereby reducing deadweight losses. When a monopoly creates deadweight losses, there remain potential customers that are not being served. These potential customers are an attractive target for new firms to enter this market. The larger (more profitable) these potential customers, the more incentive there is for new firms to enter this market.

How can price discrimination reduce the deadweight loss of a monopolist?

Price discrimination allows a monopolist to sell more output than it would sell under a uniform pricing case. Price discrimination occurs when a firm sets different prices for separate customers. With price discrimination, a firm can charge its old customers high prices, but still attract new customers by selling to them at low prices. This will decrease the deadweight losses of the monopolist.

Why is it almost impossible for a monopolist to perfectly price discriminate (charge each customer the max price they are willing to pay)?

Perfect price discrimination requires knowing the maximize price each customer is willing to pay. Because it is very difficult (impossible?) for a monopolist to discover these maximum prices, the monopolist can’t perfectly price discriminate.

What three challenges must a monopolist overcome to price discriminate?

A monopolist must overcome three challenges: a) Distinguish buyers with different price elasticities; b) Prevent low-price buyers from reselling to high-price buyers; and c) Control customer resentment

Why are coupons a form of price discrimination?

Coupons are a clever means of getting customers to self-select into two groups: 1) price- sensitive customers and 2) price insensitive customers. To use a coupon, customers must take time and effort to find, clip and hold a small piece of paper. Normally coupons therefore appeal most to those who place a low monetary value on their time. Coupons users are typically the customers most likely to shop around to find the best prices and so are exactly the type of people companies would like to target their discounts. The use of coupons successfully achieves the objective of price discrimination: Offer discounts to customers with greater price elasticity of demand.

How do airlines price discriminate?

Airlines also rely upon self-selection to price discrimination. By giving discounts to customers travelling for pleasure without offering discounts to business travelers, the airlines can increase their revenues (and profits). Business travelers have more fixed schedules than pleasure travelers. That means business travelers have smaller price elasticity of demand while pleasure travelers have larger price elasticity of demand. Price discounts to customers with larger price elasticity of demand and no discounts to customers with smaller price elasticity of demand.

Why do lawyers and teachers support strong professional licensing requirements?

The limiting of entry licenses allows members of protected professions to earn monopoly profits. Lawyers and teachers receive some protection from competitors because their professions have government-created entry barriers called licensing.

What are antitrust laws?

Antitrust laws rely on government to reduce the harm of monopolies. Antitrust laws regulate, restrict, and punish monopolies. Some antitrust laws prescribe prison terms for businesspeople attempting to create monopolies.

What are the five assumptions of perfect competition?

a. There are many buyers and sellers. b. Costless mobility of resources (no barriers to entry). c. Everyone has perfect information about the product sold (Everybody knows everything). d. All firms make exactly the same product (homogenous products). e. All buyers and sellers are price takers, meaning that no one buyer or seller can affect the price of the good sold.

How do firms in perfect competition set output?

Firms in perfect competition will set output where price (P) equals marginal cost (MC).

How do you graphically use the price and average total cost curves to determine if a firm is (a) making a positive profit, (b) making a loss, and (c) making zero profit?

In each graph using price and the average total cost curves (the per unit costs curves), observe the relation between price and average total cost. If Price > Average Total Costs (a), then the firm will be making a positive profit; if Price < Average Total Costs (b), then the firm is making a loss; finally, if Price = Average Total Costs (c), then profits are zero.

When will a firm in perfect competition shut down?

A firm considering whether to operate or shut down in the short run can make that decision by looking at the total curves or the per unit curves. Looking at the total curves, a firm should shut down only if for all levels of output Total Variable Costs > Total Revenue. Looking at the per unit curves, a firm should shut down only if for all levels of output Average Total Costs > Price.

What’s the difference between shutting down and exiting a market?

Shutting down is a short run concept. In the short run, if the firm shuts down, the firm will pay no variable costs. In the short run, a firm that shuts down must still pay their fixed costs. Exiting a market is a long run concept. In the long run the firm pays no costs.

When will a firm in perfect competition enter or exit its industry?

A firm’s profits determine whether entry or exit will occur in an industry. Positive profits will result in entry into the industry; losses will result in exiting from the industry.

Why do firms in perfect competition in the long run make zero profit?

Firms losing money will exit the industry and firms making positive profits will enter the industry. Entry and exiting the industry implies that the industry is not at equilibrium. Thus, only when firms are making zero profit will a perfectly competitive market be at long run equilibrium.

What is the social benefit of firms in the long run being on the low point of their average total cost curves?

Under perfect competition in the long run society gets goods at the lowest possible cost.

Why will a society produce the optimal number of goods if price equals marginal cost?

To maximize the wealth of a society, more should be produced as long as the benefits received from the additional products exceeds the additional costs of making them. When products are sold at a particular price, the price represents the minimum amount of extra benefits a buyer receives from the product. Under perfect competition, price equals marginal cost and buyers will continue to buy additional products up to the point where P = MC. This results in the maximization of the wealth (Total Surplus/Welfare) of society.

Why are there limited innovation in perfect competition?

Perfect competition is not the best environment for promoting the innovation needed to improve existing goods. In competitive markets, any successful innovation will be quickly copied, reducing the benefits of the innovation. So, in the long run, as economic profits are driven toward zero the incentive to innovate are reduced in perfectly competitive markets. Once an innovation has been somehow created, a perfectly competitive market will be the best environment to quickly spread innovation throughout the industry.

There are 20,000 firms in a perfectly competitive market that until today was in a long run equilibrium. The price of the good in this market had been $50 and each firm used to make 27 goods. Today, however, a sudden decrease in demand caused the price of the good to decrease to $40. Assume that after the price change price is still higher than average variable costs for some levels of output. A. In the short run will firms in this market make a profit or loss? B. In the short run will firms in this market produce more or fewer than 27 goods? C. In the short run will the average total cost of making the good increase or decrease? D. In the long run will firms enter or exit this market? E. What will happen to the supply curve in the long run? F. How will this change in supply curve affect the market price in the long run? G. In the long run how many goods will each firm in this market produce? H. In the long run will the average total cost of making the good increase or decrease compared to what it was before the price of the good fell?

A. Since firms will just covering their costs at $50, the price drop to $40 will result in firms making a loss (negative profit). B. Firms will produce less than 27 units. C. The Average Total Costs (ATC) will now be higher than they were at 27 units of output. The ATC curve is shaped like the letter “U” with its lowest point occurring at output of 27 units. Any move away from that output (higher or lower) will increase ATC. D. Firms will exit this market. E. As firms exit this market, the market supply curve will decline (shift to the left). F. As the market supply declines, the market prices will increase above $40 a unit. So long as market price < $50 (minimum point of ATC), firms will continue to exit the market (in the LR) and market price will continue to rise. Also, in the long run firms will alter the size of their facilities by building new facilities that will minimize their ATC at $50 at the lower output. G. In the long run each firm will produce less than 27 units (the initial equilibrium output). H. In the long run each firm will alter its facility size by building smaller facilities that minimize ATC at $50 at a lower output. The price will return to $50.

Assume a competitive market is in LR equilibrium , and the average total cost of producing all levels of goods suddenly falls. Describe what happens in the short run and long run to firms in this market.

In the short run, the downward shift in the ATC curve results in each firm increasing its output and earning a positive profit. In the long run, with firms earning a positive profit, new firms will enter the market. This will shift the market supply curve to the right (or downward). The increase in market supply will cause the market price to decline. New firms continue to enter as long as positive profits are being made. Eventually, market price will fall to the point where Price = minimum point of (new) ATC and profits will be zero. At that point the market will be returned to a long run equilibrium with prices lower and total output higher than before.

A firm can make either watches or clocks but not both. It is currently making an economic profit of $93,000 a year making watches. If it stopped making watches and started making clocks it would make an economic profit of $120,000 a year. Therefore this firm should exit the watch market so it can enter the clock market. But in the chapter we learned that a firm should leave a market only if it is making a loss. Something about this question is therefore contradictory. What is it?

The statement is misleading in its use of the phrase “economic profit”. The firm is not making an economic profit of $93,000 since it had the opportunity of earning $120,000 by making clocks. If a firm is making $93,000 a year making watches, but could make $120,000 a year making clocks, then the firm’s opportunity cost of making of clocks is that the firm loses the opportunity to make watches. Consequently, making watches will earn the firm only a $27,000 profit ($120,000 - $93,000). Viewed from the standpoint of firm making watches, the firm would experience losses (negative economic profits) of $27,000 ($93,000 - $120,000) since the firm could have used its efforts and resources to make clocks.

What are positive externalities? List some examples.

Positive externalities are benefits received by people other than the buyer or seller of a good. Examples of goods with positive externalities include: vaccines, education, attractive clothes.

Why are products with positive externalities underused?

Self-interested individuals will buy goods (use goods) up to the part where the price the individuals pay is just equal to the private benefits the goods generate. So, for a good that sells for $20, self-interested individuals will buy (use) the good as long as it generates $20 of benefits. If the product generates some positive externalities, it means that the product yields benefits in excess of $20. For example, if a vaccine yields positive externalities of $15, its total benefits will be $35 ($20 + $15; private benefits + external benefits). Individuals will stop buying (using) products before reaching the socially optimal number of products. The products (with positive externalities) will be underused.

What are negative externalities? List some examples.

A negative externality is a cost paid by people other than the buyer or seller of a good. Goods with negative externalities include: smoke, noise, water pollution.

Why are products with negative externalities overused?

Buyers and sellers don’t pay any cost for imposing negative externalities on others. Thus, self-interested buyers and sellers don’t take into account negative externalities in their decision making. A paper making firm often pays no costs for its waste products that are dumped into the stream, so it will produce more paper that is social optimal; that is, the presence of a negative externality results in overuse.

Why, from the viewpoint of what is best for society, is The Club overused and LoJack underused?

Both The Club and the LoJack are anti-car theft devices. The Club works as a metal lock on a car’s steering wheel. The LoJack uses a tiny electronic locator device that signals the car’s location to the police. The Club has the effect of creating negative externalities. A thief is looking for a car to steal and come across one with The Club. When you put The Club on your car, its presence decreases chance of your car being stolen, but it increases the chance of another car being stolen. The Club creates a negative externality. The LoJack has the effect of creating a positive externality. A thief is looking for a car to steal and has heard about the LoJack technology. Even though the device is tiny, and almost impossible to detect, its presence means that a thief stealing a car with LoJack will almost certainly get caught by the police. The possibility that LoJack is being used will decrease the chance a particular car will be stolen. The LoJack creates appositive externality. Since The Club creates negative externalities, it will be overused. LoJack, however, creates positive externalities and thus will be underused. From the viewpoint of what’s best for society.

What would happen if the government banned all pollution?

If the government banned all types of pollution, it would severely reduce economic production. The reduction of economic activity would be so large, that many human lives would be lost.

What are Pigouvian Taxes?

Economist Arthur Pigou supported the view that governments should tax (a “Pigouvian tax”) goods that create negative externalities. The “Pigouvian tax” reduces an individual’s incentive to use goods that generate negative externalities.

Why do Pigouvian taxes give firms more flexibility than command and control pollution regulations do?

Pigouvian taxes have four advantages over command and control pollution regulation: (1) taxation allows firms to pick their own level of pollution. (2) taxes are based on how much a firm pollutes, so a firm always has incentives to reduce pollution since it will also lower their taxes, (3) taxation gives firms flexibility in deciding how to reduce pollution, and (4) taxation creates incentives for pollution technology innovation.

Why do Pigouvian taxes create incentives for pollution reducing innovations?

If the government taxes pollution, then firms gain from innovation of new pollution- reducing technologies. These pollution-reducing technologies may come from the polluting firms themselves or the innovations may come from innovators who don’t themselves pollute.

How are prices like signposts and why do externalities cause these signposts to point in “wrong” directions?

Prices serve as signposts that guide consumers and firms. Externalities cause market prices to give “bad directions”. In the case of a product with negative externalities, the price will understate the true price of the product and so market prices will give “bad directions”. In the case of a product with products with positive externalities, the price will overstate the true price of the product and so the markets prices will give “bad directions”. The larger the externality, the more prices deviate from the socially optimal price. A socially optimal Pigouvian tax can correct for the marketplace’s “bad direction” signposts.

What is the main disadvantage of Pigouvian taxes?

Pigouvian taxes work well when the harm of pollution is proportional to the amount of pollution. The disadvantage of Pigouvian taxes is that they perform poorly when the harm of pollution is not proportional to the amount of pollution. Also, politically, in the eyes of the voter, a pollution tax becomes a license for corporations to pollute. Politicians don’t want to lose votes.

What are tradable pollution permits?

Under a tradable pollution permit plan, “pollution permits” are issued or auctioned off (the amounts ideally set by government at the socially optimal level) to firms and they are allowed to buy or sell them in an open market. A firm can pollute only up to the amount covered by the permits.

When are tradable permits socially superior to pollution taxes?

Only tradable permits allow the government to set the total amount of pollution that will be generated. When the government can somehow determine the optimal level of pollution, tradable permits are socially superior to Pigouvian taxes.

How could environmentalists use tradable permits to reduce pollution?

A tradable permit system includes an open market for buying and selling pollution permits. Environmentalist purchasing these permits and then not using the permits to pollute will reduce pollution.

What is the Coase Theorem?

The Coase Theorem holds that if there are no barriers to negotiations then all wealth- destroying externalities should be eliminated through negotiations. The Coase Theorem indicates that only when a small group of people are harmed by an externality, they can remedy the situation through negotiations.

Are poor countries underpolluted?

A “dirty” refinery will produce, as a by-product of refining oil, some pollution. Pollution is an unwanted by-product. These unwanted by-products, like sulfur dioxide, impose costs on people who are neither buyers nor sellers; these unwanted products are negative externalities. These externalities impose higher costs in rich countries than they impose costs in poor countries. Polluting the air of a poor country causes less harm (measured in dollars) than pollution in rich countries. It’s in this sense that poor countries are “underpolluted”. Rich countries could export their polluting activities to poor nations and compensate these poor countries for the pollution externalities.

Why do consumers have incentives to buy cars that are heavier than what is socially optimal?

The bigger the car, the greater the damage it potentially causes other vehicles in a crash. The heavier the car, the greater the car’s crash negative externality and since self-interested individuals ignore negative externalities when making decisions, heavier than optimal car are purchased.

Why does the government punish drunk driving more heavily than driving while cell phoning or driving while impaired and elderly?

Drunk driving significantly increases the risk of car accidents. Drinking alcohol before driving creates negative externalities. Government imposes sizable penalties for drunk drivers and these penalties have been increased because of strong lobbying efforts of Mothers Against Drunk Driving (MADD). Driving with a cell phone is at least as dangerous as driving while drunk. Driving with a cell phone, therefore, creates negative externalities similar to those of drunk driving. But the penalties for cell phone use are small compare to the penalties imposed on drunk driving because MADD lobbying efforts. A similar story holds for the elderly. As drivers age, they often lose some of their driving skills. Elderly drivers create negative externalities for each mile they drive. A rational driving policy would require all drivers (over a certain age, say 80 years) to pass a drivers test every year or so. Few states have passed laws to restrict elderly drivers because they have sizable political power. Politicians, therefore, fear restricting the driving rights of the elderly. One state, Florida, has recently enacted legislation requiring drivers 80 and over to pass a vision test in order to have a driver’s license renewed.

What does it mean to have property rights in a good?

To have property rights in a good means you can use the good yourself, sell it to others, or prevent others from using the good.

Why does lack of property rights discourage people from making investments?

A businessperson investing millions of dollars of resources, but lacking meaningful property rights, might have their profits confiscated before they can be enjoyed. The lack of property rights means that businesspeople have no incentives to suffer the initial pain that investment requires.

Why would a lack of property rights reduce investment in Russia after the break-up of the Soviet Union?

After 1991 when Russia was separated from the Soviet Union, Russia lacked property rights. This lack of property right meant that investments in Russia were discouraged. A foreign investor committing resources to Russia would find the resources being taken by others. In a manner similar to the experience of Srey Neth, investors would lose their investments and businesses. Importantly, the experience would influence other potential investors and discourage them from entering Russia. The lack of property rights reduces investment in Russia.

Why did lack of property rights doom the Truffula trees in Dr. Seuss’ The Lorax?

No one owned the Truffula trees in Dr. Suess’ book. In general, when a resource is not owned by anyone, it will be overused. The Truffula trees were overused in the Dr. Suess book. In fact, Truffula trees were cut down until the very last tree was cut down.

What is the “tragedy of the commons”?

When a resource is not owned by anyone, the resource will be overused. The phenomenon of overusing resources is called the “tragedy of the commons”.

What are rival goods?

A good is rival good if one person’s use of it reduces the amount left over for other people to consume. My consumption of a hamburger reduces the amount left over for other people to consume, so hamburger is a rival good.

What are excludable goods?

A good is excluded if people can be prevented, or excluded, from using it.

What happens to resources afflicted by the tragedy of the commons?

If a resource is rival, but non-excludable, the tragedy of the commons arises and the resource gets overused.

Why would making a lake excludable help preserve a fish population?

If the fish in the lake are non-excludable, then anyone has the right to fish in the lake. As long as fish are in the lake, each user can benefit from using the resource. As long as some user benefits from fishing in the lake, the non-excluded resource will tend to be used until the resources are depleted or destroyed. Preventing the fish in the lake being over-fished (that is, excludable), insures that enough fish survive to repopulate the lake and preserve the fish population.

How do secure property rights solve the tragedy of the commons problem?

One way to make the fish in the lake excludable is secure property rights to the lake. If the lake were owned by someone, it would make the fish excludable. If someone had secure property rights to the lake, then the owner would have an incentive to manage the resource for the long term.

What are public goods?

A public good (or service) is one that is non-rival and non-excludable. National defense is a public good the benefits everyone in the country. If the U.S military deters another country from attacking us, then all Americans benefit. National defense is non-excludable. National defense is also non-rival since the benefit received by being defended by the U.S. military doesn’t reduce the benefit any other American receives from this protection.

Why doesn’t Adam Smith’s invisible hand cause self-interested people to provide public goods?

A public good (or service) is one that is non-rival and non-excludable. National defense is a public good the benefits everyone in the country. Public goods lack secure property rights. Without secure property rights, markets don’t easily allow anyone to profit from efforts to provide the public good. Without the reward of profits, Adam Smith’s invisible hand of the marketplace won’t push self-interested people to take socially beneficial actions.

What are free-riders?

A free-rider is one who wants to gain the benefits generate from the provision of a public good without paying any of the costs. The free-rider gains the benefits without incurring the costs of provision.

Why are governments usually needed to provide public goods?

The presence of public goods (non-excludable goods) means that markets can’t be relied on to provide the optimal amounts of these public goods. One solution to this public good problem to have government (collective action) providing the public good. National defense, for example, is funded by government taxing its citizens. By imposing compulsory taxes, the government can prevent citizens from free riding off others.

What is intellectual property?

Intellectual property is information rather than physical goods. Intellectual property can consist of the code behind a software program, the notes that make up an AC/DC tune, or the secret processes that produce Wonka’s candy.

Is intellectual property rival or non-rival?

Intellectual property is non-rival. For example, if music is downloaded illegally the music remains for others to consume and enjoy. Others haven’t been prevented from listening to the music.

Has the Internet made music and movies more or less excludable?

The Internet has made music and movies far less excludable because it has made it easier for those connected to the Internet to illegally obtain music and movies.

Why do collateral-backed loans make it much easier for people in rich countries to buy homes?

In order to purchase a $250,000 home, it’s likely to take many individuals several years to save that amount of money. But a bank will be willing to loan you 90% of the $250,000 (or $225,000) if you will place the home as collateral. The bank will trust you with $225,000 because they have the legal right to seize your $250,000 home if you don’t repay the loan. Real estate owned by poor people in poor countries is frequently not diligently recorded. Consequently, the world’s poor are denied the benefits of collateral-backed loans that can benefit citizens of rich countries.

Why are banks reluctant to make collateral-backed loans on property whose ownership isn’t diligently recorded?

A bank would be reluctant to lend money to buy a piece of property that has not been diligently recorded by the government because the bank couldn’t take the property if the borrower failed to repay its loan. Diligent record keeping allows people to see which property is being used as collateral.

Do you steal intellectual property? If yes, do you consider your behavior immoral? Why or why not?

Intellectual property (IP) is a non-rival good since one person’s use of the IP doesn’t reduce the amount of this good available to others. The stealing of intellectual property is the theft of information, not physical goods. Some view information theft as less immoral than theft of physical goods. Elephants are often killed in Africa for their ivory tusks. Why might elephants in Africa be safer if it were legal to sell elephants’ tusks? If it were legal to sell elephants’ tusks, then there would be incentives for people to get into the business of producing and protecting elephants. Once people make money from the elephants by selling tusks, the sales of tusks are profitable over time. It becomes profitable for people to protect the elephants.