P ties its printer ink to its printers by embedding a patented printer head in i
ID: 1169248 • Letter: P
Question
P ties its printer ink to its printers by embedding a patented printer head in its ink cartridge rather than build it into the printer. This raises the cost of producing the ink cartridge. If the government passed a law requiring HP ink be used with HP printers, would this law increase or decrease deadweight loss?
(A) Increase
(B) Decrease
(C) No change
(D) Impossible to say
P ties its printer ink to its printers by embedding a patented printer head in its ink cartridge rather than build it into the printer. This raises the cost of producing the ink cartridge. If the government passed a law requiring HP ink be used with HP printers, would this law increase or decrease deadweight loss?
(A) Increase
(B) Decrease
(C) No change
(D) Impossible to say
Explanation / Answer
This government mandate will increase the HP printer price due to higher cost of production. Increased price will reduce consumer surplus. The deadweight loss will increase.
But higher price will increase producer surplus as well. This will reduce deadweight loss.
The net effect cannot be ascertained without quantitative data.
Correct option (D)
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