Economics true or false please help....?

Question

Suppose that a new law requires every department store in Springfield to carry $10 million worth of fire insurance. True or False: If there is only one department store in Springfield, then none of the insurance costs will be passed on to consumers, but if there are many stores, then some of the costs might be passed on.

Answer 1

All costs are passed on to the customers. Now if that single store is part of a large chain, then the cost will be divided among all their customers as will be the legal fees that build up getting the local law overturned. Then the cost increase becomes additional profit as the price increase is never reversed.

The same is true if there are many stores. Each individual consumer will end up paying about the same in either case as part of the general inflation.

Answer 2

False: One store acts like a monopoly, and would NOT think twice about passing on any extra costs it has to the customer. But if there are several stores, they also have to consider how they compete for customers in figuring out how much of the increase to pass on to customers.

So the statement has the situations backwards.

Answer 3

False-The department store raise its prices to off set the cost of the insurance and with only one store to chose from the consumers will have to continue to shop there.

Answer 4

Obviously, the previous answerers have not taken a micro econ course. These answers (and the one that follows mine) either ignore profit maximizing market structure pricing or erroneously assume and inelastic demand curve- or worse, they ignore this constraint all together.

This is a question that deals with market structure- specifically, monopoly vs. perfect competition. To review how prices are set in the two, monopolies set price (or marginal revenue) = marginal cost, while firms in perfect competition set price = minimum of the long run average cost. this is done via entrance/exiting decisions.

Since the insurance policy is fixed regardless of sales volume, it does not affect marginal cost, but does affect average cost.

Consequently, the insurance premium is paid out of economic profits (aka economic rents or rents) (note: this is not the same thing as accounting profits i.e. revenues - expenses) for a monopolist since the insurance requirement does not affect pricing. However, since the premium does affect average cost, the price that the consumer pays increases by premium / Qty for each good purchased.

Answer 5

Economically speaking....the answer would be false. In business and econ ALL costs are ultimately passed onto the consumer.

Answer 6

look whether there is 1 store or 1000 every cent will be passed on to the customer, just like every other stupid expense is passed on to the tax payers

Answer 7

The logical answer, to me, could be authentic. human beings or government ought to make/take up extra funds than they spend. yet, as yet another observed, this would be a trick question.