Managerial Economics & Organizational Architecture 6th Edition by James Brickley , Clifford Smith ,Jerold Zimmerman

Exercise 41

Suppose that the Swiss government wants to encourage good grooming by Thun citizens. To "encourage" better grooming it places a 15 CHF price cap on haircuts (no company can charge more than 15 CHF for a haircut). The government official who sponsored the new regulation argued (1) more people will want to get haircuts at a lower price and (2) thus more people will get haircuts. Do you agree with the economic reasoning of this official Explain.