Question #18

Reading: Reading 7 Economics of Regulation

PDF File: Reading 7 Economics of Regulation.pdf

Page: 9

Status: Unattempted

Correct Answer: B

Part of Context Group: Q18-19 First in Group
Shared Context
- A possible economic rationale for Calistose increase in demand for equities is that the regulation intervention has lowered: A) the savings rate. B) externalities of public goods. C) informational friction.
Question
The differences in the consumption of tobacco is most likely a result of:
Answer Choices:
A. using pricing mechanisms
B. regulatory capture theory
C. regulatory arbitrage
Explanation
Tobacco companies have noticed the differences in regulatory environment. Tobacco companies have found Calisto to be least restrictive for their product; less taxes, no labels and no anti-smoking advertising are all lower regulatory burdens for tobacco producers. Tobacco companies targeting Calisto is a form of regulatory arbitrage. Regulatory capture theory does not apply as there was no mention of tobacco companies or industry employees participating as tobacco regulators. The use of pricing mechanism did not curb tobacco usage.
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