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How are production limits used in practice to raise the prices of the following goods or services:
(a) taxi rides,
(b) drinks in a restaurant or bar,
(c) wheat or corn?
Municipal authorities generally regulate the number of taxis by the issuance of licenses. While the number of taxis is less as compared to it would be without regulation, those taxis in the market may charge a higher-as compared to the competitive price.
State authorities generally regulate the number of liquor licenses. Through requiring that any bar or restaurant which serves alcohol have a liquor license and then limiting the number of licenses available, the State limits entry through new bars and restaurants.This limitation permits those establishments which have a license to charge a higher price for alcoholic beverages.
Federal authorities generally regulate the number of acres of wheat or corn in production by making acreage limitation programs which provide farmers financial incentives to leave some of their acreage idle. This decreases supply, driving up the price of wheat or corn.
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