Question

1. What is the difference between a horizontal and a vertical merger?

2. Provide a recent example of a vertical and a horizontal merger.

3. Which are the two U.S. government entities responsible for overseeing and policing mergers?

4. If price elasticity of demand for chicken is 0.40 in absolute value, when there is a 10 percent decrease in the price of chicken, what happens to the quantity demanded of chicken?

5. In order to check if two goods are complements, which specific price elasticity is used and what would you expect the price elasticity's sign to be?

6. If you obtain 10 units of utility per dollar spent on Good X and 5 units of utility per dollar spent on good Y, what should you do to maximize utility? Explain your answer.

7. Private goods are distibguished by two primary characteristics. Explain what these are.

8. Provide a personal example of a positive and negative externality.

Answer 1

1. What is the difference between a horizontal and a vertical merger?

Horizontal Merger is a business consolidation that occurs between firms that operate in the same industry.  A horizontal merger can raise a business revenue by offering an additional range of products to existing customers. Example- Toyota and Suzuki in India developing a new car Glanza. Vertical merger happens when the businesses are typically at different stages of production. For example, a manufacturer might merge with a distributor selling its products. Example- tyre company taking over a rubber plant. Example- Ikea a furniture company buys Romanian Baltic forests to better control Its raw materials supply.

2. Provide a recent example of a vertical and a horizontal merger.- explained above.

3. Which are the two U.S. government entities responsible for overseeing and policing mergers?

Federal trade commission is an agency to oversee and policing mergers. Section 7 of Clayton act is guiding article.

4. If price elasticity of demand for chicken is 0.40 in absolute value, when there is a 10 percent decrease in the price of chicken, what happens to the quantity demanded of chicken?

Price elasticity of demand (Ped), is a degree of responsiveness to a change in price.

Ped= % change in quantity demanded/% change in price.

In this case,

0.4= x/10

x= 0.4*10= 4

it shows that there will be 4 % increase in quantity of chicken sold.