Chapter 9: Problem 2

Classify the following as a government-enforced barrier to entry, a barrier to entry that is not governmentenforced, or a situation that does not involve a barrier to entry. a. A city passes a law on how many licenses it will issue for taxicabs b. A city passes a law that all taxicab drivers must pass a driving safety test and have insurance c. A well-known trademark d. Owning a spring that offers very pure water e. An industry where economies of scale are very large compared to the size of demand in the market

Short Answer

Expert verified

a. Government-enforced barrier to entry b. Government-enforced barrier to entry c. Barrier to entry that is not government-enforced d. Barrier to entry that is not government-enforced e. Barrier to entry that is not government-enforced

Step by step solution

(Situation a)

For situation a, where a city passes a law on limiting the number of licenses it will issue for taxicabs, this would be classified as a government-enforced barrier to entry. This is because the local government is creating a restriction that limits the number of new taxicab businesses that can enter the market.

(Situation b)

For situation b, where a city passes a law that all taxicab drivers must pass a driving safety test and have insurance, this would also be classified as a government-enforced barrier to entry. While this regulation is meant to ensure passenger safety and responsible business practices, it still represents a barrier for entry into the market as potential drivers need to meet these requirements before starting their service.

(Situation c)

For situation c, a well-known trademark, this would be classified as a barrier to entry that is not government-enforced. A well-known trademark provides a significant competitive advantage in the market, making it more difficult for new entrants to compete against such an established brand. However, this is not enforced by the government and is instead a result of the company's own marketing and branding efforts.

(Situation d)

For situation d, owning a spring that offers very pure water, this would also be classified as a barrier to entry that is not government-enforced. The ownership of a unique natural resource, in this case, very pure water, would provide the owner with a significant advantage in the market. Other potential entrants cannot easily replicate this advantage, thus creating a barrier to entry for competitors.

(Situation e)

For situation e, an industry where economies of scale are very large compared to the size of demand in the market, this would also be a barrier to entry that is not government-enforced. When economies of scale are large, larger firms can produce goods at a lower cost per unit, making it difficult for new, smaller entrants to compete on price. This advantage is not government-enforced, but rather a result of the industry structure and production characteristics.

Unlock Step-by-Step Solutions & Ace Your Exams!

Full Textbook Solutions
Get detailed explanations and key concepts
Unlimited Al creation
Al flashcards, explanations, exams and more...
Ads-free access
To over 500 millions flashcards
Money-back guarantee
We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!