A natural monopoly is defined by an industry where production is most efficient (i.e. lowest long-run average cost) when it is concentrated in a single firm. This implies increasing returns to scale, which is not characteristic of perfect competition. In other words, the natural monopolist will have a significant cost advantage over smaller competitors that try to enter the market.

A natural monopoly is very similar to and experiences the same inefficiencies as a traditional monopoly. The difference is that these inefficiencies cannot be corrected by increasing competition, as a single seller can produce more efficiently than many sellers in a market that is a natural monopoly.

The electric company, railway, and telecoms operator are all examples of industries with very high fixed costs where the lowest average cost could only be achieved at a high level output, which discourages competition and is characteristic of natural monopoly.

The drug-maker operates as a monopoly due to the legal barrier (patent) that prevents entry into the market (for that specific drug). Therefore, it is NOT a natural monopoly.

As pencils and erasers are used together they can be considered complementary goods. You can use a supply and demand graph for each market to track the following steps:

• The shortage in rubber shifts the supply curve in the eraser market inward
• As a result, the price of erasers increases
• Since pencils and erasers go together, a higher price for erasers means people demand fewer pencils at any given price.
• This results in an inward shift of the demand curve in the pencil market.
• As a result, both the price and quantity of pencils being sold goes down.

Complementary goods are defined by a negative cross elasticity of demand, which means simply that demand for one good increases when the price of another decreases (and vice versa).  A price increase for Good A resulting in a decrease in demand for Good B fits this definition.

The goods are thus not substitutes. They could potentially be one of the other types of goods but you don't have enough information in the question to make that determination.

Some, or even many, people may love both music and art, but that does not suggest that music books and artwork are regularly purchased together. The other examples are goods that clearly work better together.

A decrease in the price of a complementary good would result in an outward shift in the demand curve, which is the only shift which would result in increased price and quantity of a given good.

A decrease in the price of substitute good would result in an inward shift of the demand curve. A subsidy for production would affect the supply curve. A price floor above the current equilibrium would necessarily affect the price, but not the quantity traded.

An increase in production costs for tea results in an inward shift in the supply curve in the tea market. As a result, the market price of tea increases.

As tea becomes more expensive, consumers will prefer to consume more coffee at any given price. This is an outward shift in the demand curve that will result in a higher market price for coffee.

The correct answer is an example of a "network externality." The software might be a video chat service or spreadsheet software and the more people who use it the more value it has for others who use the same format. If it reaches a so-called "tipping point" it may lead to one firm dominating the market.

A public good is non-exclusive and non-rivalrous and thus provides external benefits that others can enjoy without paying. However, this does not mean that it cannot be sold at a price above zero. It is just that whoever produces such a good does so knowing some consumers will benefit without paying.