Distinguish between cost-of-service regulation and rate-of return regulation. What problem is inherent in both types of regulation?
What will be an ideal response?
Cost-of-service regulation allows the regulated companies to charge only prices that reflect the actual average cost of providing the services to the customers. Rate-of-return regulation allows regulated companies to set prices that ensure a normal rate of return on investment. A problem with both types is quality of service. Firms charge a regulated price but if quality deteriorates the price per constant-quality increases. Quality is hard to measure so it is hard for the regulators to control.
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The functions of money are to serve as a
A. resource allocator, a method for accounting, and a means of income distribution. B. determinant of consumption, investment, and government spending. C. unit of account, a store of value, and a medium of exchange. D. factor of production, exchange, and aggregate supply.
The above figure shows a labor market with a minimum wage of $8 an hour. How many people are employed when the minimum wage is in place?
A) 40,000 B) 60,000 C) 80,000 D) fewer than 40,000 E) more than 80,000
An increase in capital inflows will
A) increase the equilibrium exchange rate. B) increase net foreign investment. C) increase capital outflows. D) decrease capital outflows.
Under conditions of perfect competition, an individual producer
a. charges a price higher than the market price. b. endeavors to undercut the market price. c. accepts the market price. d. advertises product quality.