One drawback to consumer-protection regulations is that they lead to what effect in the market?

• A. A perfectly efficient allocation of resources
• B. An increase in producer surplus for all firms
• C. A reduction in consumer surplus due to higher prices or restricted choices
• D. Unlimited willingness to pay among consumers

Answer: (C)

Verified step by step guidance

1. Understand the concept of consumer-protection regulations: These are rules designed to protect consumers from unfair practices, unsafe products, or misleading information.
2. Recognize that such regulations often impose costs on producers, such as compliance costs or restrictions on product features.
3. Analyze how these costs can affect the market equilibrium: higher production costs or restrictions can lead to higher prices or fewer product choices for consumers.
4. Recall the definitions of consumer surplus and producer surplus: consumer surplus is the difference between what consumers are willing to pay and what they actually pay, while producer surplus is the difference between the market price and the minimum price producers are willing to accept.
5. Conclude that consumer-protection regulations can reduce consumer surplus because consumers may face higher prices or limited options, even though the intention is to protect them.