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Chapter 27: Q. 5 (page 621)

Are lemons problems likely to be more common in some industries and less common in others? Based on your answer to this question, should government regulatory activities designed to reduce the scope of lemons problems take the form of economic regulation or social regulation? Take a stand, and support your reasoning.

Short Answer

Expert verified

Lemon problems are more probable in some industries and less likely in others.

Balance the trade, economic controls would exacerbate the lemon problems. To restrict the scope of lemon problems, societal rules should be imposed.

Step by step solution

01

Introduction

Lemon problems arise in businesses where quality control of goods and services is challenging. As a result, lemon problems are more probable in some industries and less likely in others.

02

Given Information

Given data:

-Problems with lemons are more probable in some industries and less likely in others.

-Economic regulation or social regulation are used to reduce the scope of lemon problems.

03

Explanation

  • Lemon issues arise in businesses where quality control of goods and services is challenging. As a result, lemon problems are more probable in some industries and less likely in others.
  • Lemon issues are likely to have a detrimental impact on product prices. Producers of these goods attempt to minimize the production of high-quality goods in order to reduce costs.
  • To decrease the scope of lemon issues, social restrictions would be effective. Social rules can prevent negative spillover effects from lemon problems.
  • Because they attempt to balance the trade, economic controls would exacerbate the lemon problems. To restrict the scope of lemon problems, societal rules should be imposed.

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