Environmental Protection Agency (EPA) regulations tend to go through many stages of review and approval before they are implemented. Not only do many regulators have to approve a new regulation, but comments and reviews from industry and conservation organizations are typical. Explain these complicated procedures in light of the theories of supply and demand for regulation.
What will be an ideal response?
The economic theory of regulation is based on those who demand regulation (special interest groups) and those who supply it (politicians). For most proposed government action, two special interest groups can be identified-those made better off (in this case, conservation organizations) and those made worse off(in this case, the industry that gets affected by government regulation). Therefore, both groups try to lobby politicians.
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If all goods are essential, a consumer will optimize at an interior solution.
Answer the following statement true (T) or false (F)
Which of the following conditions is TRUE for a monopolist?
A) MR < P B) MR = P C) MR = AFC D) MR < AVC
If the government regulates a natural monopoly by forcing the firm to set price equal to marginal cost,
A) the firm will earn a negative economic profit. B) the firm will earn zero economic profit. C) the firm will earn a fair economic profit. D) the firm will earn a positive and large economic profit.
Refer to the graph shown. Assume the market is initially in equilibrium at point b in the graph but the imposition of a per-unit tax on this product shifts the supply curve up from S0 to S1. The lost producer surplus of this tax is equal to the area:
A. P1P2cb. B. abc. C. P1(P2 ? t)ab. D. bcd.