What is a price cap? Why might it be a more effective way of regulating monopoly than rate of return regulation?
What will be an ideal response?
A price cap is a price ceiling, a regulation that sets the maximum price the regulated firm can charge. This type of regulation might be a more effective method of regulation than rate of return regulation because rate of return regulation gives managers the incentive to inflate their costs. Price cap regulation, however, gives the regulated firm the incentive to operate efficiently and not inflate its costs.
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Which one of the following is TRUE in an open economy with a government sector?
A) The equilibrium level of real GDP occurs when total planned real expenditures equal real GDP. B) The equilibrium level of real GDP occurs when planned real investment spending is zero. C) The equilibrium level of real GDP occurs when planned real saving equals government spending. D) The equilibrium level of real GDP occurs when real net export spending equals zero.
During this year, Barbara earned $60,000 as a financial analyst, paid taxes of $5,000 and consumed $53,000. If Barbara's wealth was $4,000 at the beginning of the year, at the end of the year Barbara's wealth was
A) $6,000. B) $60,000. C) $2,000. D) $4,000. E) $5,000.