Author Question: Sofia, a political science student, thinks that the government should intervene to revive declining ... (Read 34 times)

jCorn1234 · **on:** Jun 29, 2018

Sofia, a political science student, thinks that the government should intervene to revive declining industries like video rentals and print newspapers.

The government, she reasons, can resolve the coordination problem of getting the agents in these markets to trade. Do you agree with her? Explain your answer.

Question 2

What must be true for an industry to be in long-run equilibrium?

What will be an ideal response?

ebonylittles · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Sofia's reasoning is flawed because declining industries do not face a coordination problem. A coordination problem results when economic agents with coinciding interests cannot be brought together to trade. However, in this case, falling demand is responsible for the decline of industries like video rentals and print newspapers. Even if the government attempted to bring together economic agents in these industries, it is unlikely that demand for rented videos and newspapers will increase.

Answer to Question 2

If an industry is in equilibrium, existing firms have no incentive to change their scale of production and firms have no incentive to enter or leave the industry.