CHAPTER 14
GOVERNMENT AND INDUSTRY: CHALLENGES AND
OPPORTUNITIES FOR TODAY’S MANAGER
QUESTIONS
1. * Provides a legal and social framework within which market participants operate.
2. Market externalities are either benefits that are not accrued (i.e., benefit externalities) or costs (i.e.,
cost externalities) that are not incurred by either the buyers or sellers in a given market.
3. The government attempts to “internalize” benefit externalities by taxing the public and then
The government attempts to “internalize” the externalities by imposing fines or taxes on companies
4. Let us suppose that this chemical company was dumping its industrial waste into a river. The
5. We believe that students and instructors should basically agree with this statement, although some
may prefer to use “self-interest” instead of “selfish.” Behind both the supply and demand in a
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The Role of Government in the Market Economy 129
6. The Coase theorem states that, in the presence of cost externalities, government intervention may
7. We, the authors, do not think so. There is enough potential competition from the likes of Sun and
8. Mergers are usually done for purposes of cost cutting (e.g., does the newly formed company need
two information systems departments?). All of the industries listed in the question have companies
that merged for cost-cutting reasons. But in some cases, mergers are done to increase revenue as