Question

2. Classify the following as a government-enforced barrier to entry, a barrier to entry that is not government-enforced, or a situation that does not involve a barrier to entry.

a. A city passes a law on how many licenses it will issue for taxicabs

b. A city passes a law that all taxicab drivers must pass a driving safety test and have insurance

c. A well-known trademark

d. Owning a spring that offers very pure water

e. An industry where economies of scale are very large compared to the size of demand in the market

Short answer

a. This is a government-imposed entry barrier.

b. Although this is an example of government regulation, it may not be a significant barrier to entry if the majority of people can pass the safety test and obtain insurance.

c. Trademarks are a barrier to entry since they are enforced by the government.

d. Since there are a variety of means to obtain pure water, this is unlikely to constitute a barrier to admission.

e. This is an entry barrier, but it is not imposed by the government.

Step-by-step solution

Step 1a: Given the information

A city passes a law on how many licenses it will issue for taxicabs.

Step 2:Explanation 

This is a government-created barrier to entry.

Step 3b: Given

A city passes a law that all taxicab drivers must pass a driving safety test and have insurance.

Step 4b: Explanation

While this is an example of government regulation, it is unlikely to be a significant barrier to entry if the majority of people can pass the safety test and receive insurance.

Step 5c: Given

A well-known trademark.

Step 6c: Explanation

Because trademarks are enforced by the government, they are a barrier to entry.

Step 7d: Given

Owning a spring that offers very pure water

Step 8d:Explanation

Since pure water can be obtained in a variety of ways, this is unlikely to be a barrier to admittance.

Step 9e: Given

An industry where economies of scale are very large compared to the size of demand in the market.

Step 10e: Explanation

Although this is an entry barrier, the government does not implement it.