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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Bob's winery sells bottles of their expensive, high-quality wine and a cheaper low-quality wine. Visitors have to drive 45 minutes to get to Bob's winery
Bob also sells his wine at a shop in the city where consumers don't have to drive a long distance and charges the same prices. Assuming the preferences of the clients that come to the winery and the city store are the same, explain why Bob tends to sell the expensive wine in a greater proportion in the winery than the urban store.
The import demand curve shows the amount of the home country's:
a. surplus at various prices below the "no-trade" equilibrium. b. shortage at various prices below the "no-trade" equilibrium. c. equilibrium "no-trade" quantity demanded. d. surplus at various prices above the "no-trade" equilibrium. e. shortage at various prices above the "no-trade" equilibrium.