Figure 9.4.1 -Refer to Figure 9.4.1 Above. Suppose the Government Raises the Raises

question 98

Multiple Choice

Figure 9.4.1
-Refer to Figure 9.4.1 above. Suppose the government raises the price of cheese above the market equilibrium level (P₀) by imposing a high minimum price and purchasing all of the excess supply from the market, and these quantities are destroyed. Based on the areas in the figure below, what is the change in producer surplus after this policy is adopted?

• A) Producers lose area C but gain area A.
• B) Producers lose area C but gain area A+B.
• C) Producers gain A.
• D) Producers gain area A+B+D.

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Definitions:

Short-run

A period in which at least one factor of production is fixed, limiting the ability of a business to fully adjust to market changes.

Short-run Aggregate Supply

The total supply of goods and services that firms in an economy plan on selling during a specific time period at current prices.

Short-run Phillips Curve

It illustrates the inverse relationship between the rate of inflation and the unemployment rate in the short term.

Agricultural Goods

Products that originate from farming and agriculture, including both crops and livestock.