What are the problems associated with price regulation? What ...

[gbarreiro]

What are the problems associated with price regulation?
 
  What will be an ideal response?

Question 2

Assume that an individual has to decide between a two-day vacation and a three-day vacation to the same place. If he uses optimization in differences, he will:
 
  A) only think about the net benefits of the extra day.
  B) compare the total net benefits of both alternatives.
  C) choose the three-day vacation only if the costs incurred on the third day exceed the benefits he receives.
  D) spend more time to come to a decision than if he would have used optimization in levels.

[al]

Answer to Question 1

The main problem with price regulation is that it reduces firms' incentive to minimize costs because with price regulation a firm is guaranteed to make zero economic profits. Another problem associated with price regulation is that because firms earn fewer profits, the incentive to innovate and produce new goods and services is greatly reduced.

Answer to Question 2

A

[gbarreiro]

Thanks for the timely response, appreciate it

[pangili4]

Excellent