Question

In: Economics

When consumers have no choice but to buy from one firm (local utility, etc.): a) they...

When consumers have no choice but to buy from one firm (local utility, etc.):

a) they usually end up paying too much for the good or service.

b) government regulation is usually used to protect consumers.

c) they will always get the good or service at the lowest price available.

d) none of these occur.

Solutions

Expert Solution

Ans. Option B is correct.

Local utility companies have a monopoly in the market for example gasoline, electricity, etc. They have no other competitor and customers are only able to buy goods or services from one firm.

However, having a monopoly doesn't mean that the firms can exploit the customers. To manage their actions, the government have strict regulations in place so that they cannot control the market, charge high price, and manipulate consumer's choice.

As for other options, the local utility firms cannot charge too much of a high price. And it doesn't also mean that the local firms will provide the goods at a low price. They are doing business and it doesn't make sense that they will suffer a loss. However, their prices are still fairly regulated.


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