Author Question: Rate of return regulation, as currently applied to many natural monopolies such as public utilities, ... (Read 48 times)

RODY.ELKHALIL · **on:** Jun 29, 2018

Rate of return regulation, as currently applied to many natural monopolies such as public utilities,

A) generally involves the use of price caps.
B) gives the firms an incentive to inflate their costs.
C) gives the firms an incentive to cut their costs as much as possible.
D) generally keeps their prices higher than if they were unregulated monopolists.

Question 2

What does the income elasticity of demand measure? How is it calculated?

What will be an ideal response?

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

Answer to Question 1

B

Answer to Question 2

The income elasticity of demand measures the responsiveness of demand to changes in income. It is calculated by dividing the percentage change in quantity demanded by the percentage change in income.