Question #24
Reading: Reading 7 Economics of Regulation
PDF File: Reading 7 Economics of Regulation.pdf
Page: 11
Status: Unattempted
Correct Answer: B
Question
To combat childhood obesity, the city of San Francisco, CA banned fast food restaurants to bundle free toys with kids menu choices deemed unhealthy. The restaurants simply allowed customers an option to purchase toys at an insignificant cost in lieu of including it free. This is an example of:
Answer Choices:
A. Regulatory failure
B. Regulatory capture
C. Regulatory arbitrage
Explanation
Regulatory arbitrage occurs when the firms exploit the difference between the economic
substance and interpretation of a regulation. Regulatory capture occurs when the
regulatory body gets influenced (or even controlled) by the regulated industry. Regulatory
failure is not defined in the curriculum.