Final answer:
Competition is more likely when there is easy entry into and exit out of industries, suggesting minimal barriers to entry. Government-enforced barriers include licensing laws and safety regulations, while non-government barriers include trademarks and control of unique resources. Policymakers need to address the balance between scale benefits and competition loss. The correct option is A.
Step-by-step explanation:
Competition is more likely to exist when there is easy entry into and exit out of industries. This scenario indicates a market with few barriers to entry, allowing more firms to compete, thereby increasing competition. Conversely, options involving a government-issued license, government purchases of goods and services, or economic power concentrated among a few large firms suggest barriers to entry that would likely reduce competition.
Regarding the classification of barriers to entry based on given scenarios:
- A city passes a law on how many licenses it will issue for taxicabs - Government-enforced barrier to entry.
- A city passes a law that all taxicab drivers must pass a driving safety test and have insurance - Government-enforced barrier to entry.
- A well-known trademark - Barrier to entry that is not government-enforced.
- Owning a spring that offers very pure water - Barrier to entry that is not government-enforced.
- An industry where economies of scale are very large compared to the size of demand in the market - Barrier to entry that is not government-enforced.
Government policymakers must balance the benefits of large-scale production against the potential loss of competition, particularly in oligopolies and monopolies, where barriers to entry can enable significant economic profits without attracting new competition.