Question

How is the demand for lumber affected by the demand for housing?

- Define market power, and then discuss the rationale for government regulation of firms with market power.

Answer 1

1) :-Demand for lumber cause demand this is arise because lumber is use in housing and it cause the demand for lumber for example if demand of housing increase then demand of lumber automatically increase even if the demand of lumber increase for any other work the demand of housing increase also vice varsa

2) :-Market power is defined as a ability of firm to influence the market price of its product.

A monopoly or firms acting together as we know that monopoly have market power

It means it has ability to raise price without losing all sales to rivals in market . For example If output is restricted, then the marginal benefit of the last unit of product produced automatically exceeds its marginal cost. That cause under allocation of resources to those firms' products, and then social welfare is reduced. Government regulation attempts to improve social welfare in such situations