Question

Due to heavy lobbying by the Cake Makers of America, the government issues a new regulation that requires people who sell cakes to purchase a license. Given this scenario, it can be said that government is creating:
A safer workplace

A better product

A barrier to market entry

A more competitive market

Answer 1

Answer: Option A barrier to market entry

Explanation:

Here the government creates a barrier to entry where the cost involved to enter into the market is increased. The cake makers have to obtain a license through paying fees to the government. These start up cost act as an obstacle for people who sell cakes. This also reduces the number of people entering into cake making business. This sign is known as barrier to market entry.

When there are barriers the existing firms have the benefit of increasing their profits and market share. As there are only few people entering into the market it reduces their competition.