Suppose that a regulated industry experiences an increase in the price of inputs used to produce the good. Which of the following statements is true?

Question

Quizplus · Accepted Answer

In the capture theory, the regulated industry may be able to pass the increased cost of inputs onto consumers through higher prices, resulting in a quicker increase in price. On the other hand, in the share-the-gains, share-the-pain theory, the cost increase may be shared between the industry and consumers, resulting in a slower increase in price. Therefore, an increase in price will occur quicker in the capture theory than the share-the-gains, share-the-pain theory. Option A is incorrect because in the capture theory, while profits may decrease due to increased input costs, it is not necessarily the case for the share-the-gains, share-the-pain theory. Option B and D do not accurately reflect the relationship between the two theories and the impact of input price increases.

Suppose That a Regulated Industry Experiences an Increase in the Price