Question

Erin Reinhardt and her friend Carol Newman have just arrived in the country Boloni for a summer holiday. While renting a car on their first day in Boloni they notice that the car rental rates are so much higher than rates back home. Carol says that in a matter of​ time, competition should drive prices down. Erin feels that the market for car rentals is probably competitive​ enough; it could just be high cost of operations in Boloni that are responsible for the high prices.

Which of the​ following, if​ true, would weaken​ Carol's argument that competition will drive prices​ down?

A. The car rental industry recently implemented​ no-show fees for customers who do not pick up their cars after making a reservation.
B. Information on car rental rates being easily​ available, it is almost impossible for firms to charge different consumers different prices.
C. To reduce​ emissions, the government has recently introduced tax per mile driven on automobiles.
D. Compared to​ Carol's home​ country, people in Boloni have lower purchasing power.
E. The government of Boloni set aside a substantial amount of money this year for the construction of freeways.

Answer 1

Answer: Option (C) is correct

Here in this given comprehension, Carol profess that entry of new organization in market will further lead to reduction in prices.​ However, new tax introduced by authorities will therefore increase costs for organization in industry. Therefore, we could state that even though there are new​ firms entering, this does not necessarily mean prices will fall.

i.e. To reduce​ emissions, the government has recently introduced tax per mile driven on automobiles, if​ true, would weaken​ Carol's argument that competition will drive prices​ down