Question

Analyze the Kaldor-Hicks efficiency consequences of FCC regualtion of indecent/obscene language on commercial television relative to laissez-faire. Carefully distinguish between costs, benefits, transfers and deadweight costs.

Answer 1

There will be some loss as people who demand indecent /obscene material will loose some of consumer surplus. Furthermore creators of obsence materials will loose some producer surplus.

The benefit accrues to that part of society who either dislike consumption of obsence materials by themselves and/or by others. The transfer is from those who like obsence language to those who dislike it. There could be deadweight loss due to consumers of obsence language switching to other costly methods of watching obsence material. In that case supply and demand for obsence material will not meet at initial equilibrium level. The deadweight loss is equal to A then in below mentioned figure. The initial price before regulation is po and after regulation is p1. Demand falls to qo and deadweight loss is A

Other reason could be willingness to pay to those who benefit is less than those who loose