Which of the following best describes how the government regulates businesses through licensing and wage/price controls?

• A. By directly managing all business operations and determining the output of every firm.
• B. By eliminating all restrictions on business entry and allowing wages and prices to be set solely by market forces.
• C. By requiring certain businesses to obtain licenses to operate and setting minimum wages or maximum prices to influence market outcomes.
• D. By providing subsidies to all businesses and removing any form of regulation.

Answer: (C)

Verified step by step guidance

1. Understand the role of government regulation in microeconomics, which often involves influencing market outcomes to correct market failures or protect consumers and workers.
2. Recognize that licensing is a regulatory tool where the government requires businesses to obtain permission before operating, ensuring standards and safety.
3. Identify wage controls, such as minimum wage laws, where the government sets a floor on wages to protect workers from exploitation.
4. Identify price controls, such as price ceilings or floors, where the government limits how high or low prices can go to prevent unfair pricing or shortages.
5. Conclude that the government regulates businesses not by managing all operations or eliminating restrictions, but by imposing licenses and wage/price controls to influence market behavior.