Question

(Related to the Apply the Concept on page 483) The North Carolina State Board of Dental Examiners had been requiring that only licensed dentists be allowed to sell teethwhitening services. The board brought legal action against hair salons and spas that also offered these services, arguing that only licensed dentists have the training to ensure that consumers aren't injured in the teeth-whitening process. In \(2015,\) the U.S. Supreme Court ruled that a federal government agency had the authority to stop the board from preventing non-dentists from offering teeth-whitening services. According to a news report, the federal agency argued that "the dental board was motivated by financial selfinterest, not health concerns." a. Predict the effect of the Supreme Court ruling on the price and quantity of teeth-whitening services offered in North Carolina. b. Can we be sure that the result of the decision will be to increase the well-being of consumers of teeth-whitening services in the state? Briefly explain.

Short answer

A. The Supreme Court ruling will likely lead to a decrease in price and increase in quantity of teeth-whitening services offered in North Carolina. B. While consumers might benefit from lower prices and more available services, there is no certainty that the overall consumer well-being will increase, as the quality of service and potential health risks could negatively affect consumer well-being.

Step-by-step solution

Predicting Effect on Price and Quantity

Before the Supreme Court ruling, only licensed dentists could offer teeth-whitening services, which limited the number of service providers and therefore competition. This could have likely kept prices relatively high and quantity limited. After the ruling, the market will open up to non-dentists, which will increase competition. As per basic supply and demand principles, an increased supply (more providers offering teeth-whitening services) often leads to lower prices and higher quantities.

Discussing Consumer Well-being

While the increase in service providers might decrease prices and increase quantity, one cannot be certain that it will increase consumer well-being. On one hand consumers benefit from decreased prices and wider availability of services; on the other hand, if non-dentists provide poor quality services or if there are health risks involved, consumer well-being could potentially decrease.

Key concepts

Supply and Demand

Understanding supply and demand is fundamental in assessing the economic effects of Supreme Court rulings. This concept illustrates how the availability of goods or services (supply) and the desire of consumers to purchase them (demand) set the market equilibrium, influencing both price and quantity.

In the context of the case discussed, before the ruling, the supply of teeth-whitening services was restricted to licensed dentists, limiting the market. The equilibrium was thus determined by a higher price and lower quantity. Post-ruling, the market is likely to witness an influx of non-dentists offering similar services, effectively increasing the supply. When supply goes up, if demand remains unchanged, we typically see prices fall, and quantities increase, reaching a new equilibrium.

Market Competition

The role of market competition takes center stage after the ruling. Competition in a market ensures that providers vie to offer better services at lower prices to attract consumers.

Increased Market Entrants

When non-dentists are allowed to provide teeth-whitening services, it disrupts the previous monopoly of dentists. This can lead to innovation and improved techniques in the long term, as each provider aims to distinguish their service.

Potential Quality Concerns

However, the influx of providers can also mean varied levels of service quality. It's essential for some regulatory checks to ensure that while competition is encouraged, it doesn't compromise on the safety and quality of teeth-whitening services provided.

Consumer Well-being

The impact on consumer well-being is a mixed bag. While more competition can lower costs and increase accessibility, it is not a guarantee of improved well-being. Affordable pricing does increase consumer surplus—the difference between what consumers are willing to pay and what they actually pay—leading to a perceived increase in well-being.

Quality vs. Accessibility

However, the assumption that consumer well-being improves with more service providers holds true only if the services offered meet certain quality and safety standards. If the quality decreases or if consumers are exposed to greater health risks, then the additional choices and lower prices won't necessarily translate to improved well-being.

Price and Quantity Determination

The Supreme Court ruling fundamentally alters how both price and quantity are determined. Prior to such rulings, the restrictive practices likely resulted in a higher equilibrium price and lower quantity. In economic terms, with the barrier to entry removed, the supply curve shifts rightward.

New Equilibrium Post-Ruling

A rightward shift in the supply curve means that for any given price, more services are supplied, or for any given amount of service, the price is lower. As the market adapts to these changes, the new equilibrium point will be established at a lower price and a higher quantity, benefiting consumers who are looking for more affordable teeth-whitening options. Yet, the ultimate impact depends on the responsiveness of demand to changes in price, known as price elasticity. If demand is elastic, the quantity demanded will significantly increase as the price decreases.