Question

Consider the case of long-distance telephone service. In country X, there are 20 providers of long-distance telephone service in a highly competitive market environment. On the other hand, in country Y, long-distance telephone service is largely regulated by the government, with the firm Horizon as the sole provider of this service. Under these circumstances, it is expected that;

a. countries X and Y will have similar growth potential.
b. country X will have higher growth potential than country Y.
c. country X will have lower growth potential than country Y.
d. More information is needed to comment on the growth potential.

Answer 1

The correct answer is B. Country X will have higher growth potential than country Y.

Step-by-step explanation:

The economic growth in a nation and therefore the increase in the GDP (Gross Domestic Product) is affected by multiple factors that include natural resources, infrastructure, labor, technology, and law. In terms of law and technology, a country with an open-competitive market that includes multiple corporations/providers is one area is more likely to have economic growth that a country with only one provider and strict government regulations, considering the regulations and lack of competitiveness limit the technological development, which means it is likely the services provided do not improve and therefore do not lead to economic growth. According to this, in the case presented country X is likely to have higher growth potential as in this country, the competitive market supports the development of technology and thus the economic growth.