Deregulation

Deregulation

Effect	Scenario	A	B	C
short-term	Prices	Decrease	Increase	Increase
short-term	Quality of goods and services	Improves	Improves	Declines
short-term	Welfare of industry workers	Declines	Improves	Declines
long-term	Prices	Decrease	Increase	Decrease
long-term	Competition	Increase	Decrease	Increase

Which is the most likely scenario resulting from deregulation?

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Answer: C

In the short-run:

• Prices may rise.
• The quality of goods and services may decline.
• Unions become less powerful and employees may be laid off.
• High cost producers may exit the industry due to lower profits.

In the long-run:

• Prices should fall.
• Industries will become more competitive as barriers to entry fall.