Question

Consider the information about the McDonald's Hot Coffee case and the information about Tort Reforms. Also consider the information about Consumer Product Injuries in our text (pgs. 225 - 226).

According to our text, the basic rationale for holding manufacturers strictly liable for defective product harm is that the cost of liability will be captured in the price, thereby directing consumers toward efficiency (Cooter and Ulen, 2012, p. 226). Tort reform caps liability. What therefore is the impact of tort reform on efficiency in Consumer Product Injury cases? Defend your answer.

Answer 1

The supply - demand framework explains the way in which suppliers and customers interact to establish quantity & the price of a commodity in the marketplace . To comprehend demand & supply of a commodity, consumers & sellers’ behavior & how their acts impact price & quantity must be established. Therefore, some chief factors impact demand & supply. Chief factors impacting supply are the price of a commodity, income, technology, taste & preferences of customers, price of other commodities (chiefly substitutes), government acts and the amount of info available on the commodity. Companies decide on the amount of commodity to supply depending on its price, the cost of production & governmental policies. For example, companies increase the supply of commodities at higher prices. Also, if the cost of production is more, the supply of an item falls & vice versa. Also, high taxes & any other unfriendly regulations by the government lessen the supply.

Hall & Lieberman  said that a shift in demand happens when determinants other than the price of a commodity impact demand. Hence, the amount of product a customer aspires to buy alter regardless of the price. This scenario leads to a rise / reduction in demand. They added that changes in the price lead to a movement along the demand curve. In this case, other determinants impacting demand are held constant. This situation is called a change in quantity demanded.