Suppose that in order to prevent loss of revenue due to used product markets, sm

Question

Suppose that in order to prevent loss of revenue due to used product markets, smart phone providers successfully lobby the government to make it illegal to buy or sale used smart phones. In effect, this limits consumers' property rights over their smart phones. Assuming that black markets do not exist and new phones are more expensive than used phones, which of the following statements is true? O There is no loss of mutually beneficial transactions since all consumers who would have bought a used phone can now simply purchase a new phone for the same price as a used one. The equilibrium price and quantity of used phones will increase. The equilibrium price and quantity of used phones will remain the same. O There is a loss of mutually beneficial transactions in the economy since some consumers would be willing and able to buy used smart phones and some would be willing and able to sell their used phones. Now, everyone must purchase news phones from providers

Explanation / Answer

Correct Answer:

D

It will a loss of benefits to the consumers. Here, neither consumers willing to buy used phones can buy it, nor the consumers willing to sell, can sell it. Besides, they have to pay higher price for the new phones.

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