Question

The requirement that certain professionals possess a license in order to work in a particular market has the effect of reducing the supply of those services, which in turn causes:

Select one:

a. price to decrease and the profits of firms in the market to increase.

b. price and the profits of firms in the market to increase.

c. price and the profits of firms in the market to decrease.

d. price to increase and the profits of firms in the market to decrease.

Answer 1

Ans-: ( b) Price and the profits of firms in the market to increase.

Reason -: Requirement of licence for servives reduces the supply of the services . The requirement of license creates a barrier to entry in the market for the firms who do not possess the license. Thus, it gives market power to the firms to charge higher prices . Since , supply is less so there are not much options for the consumers to choose from , this will increase the profits as there will be not much loss of customer base if the price is hiked.