Refer to the Information Provided in Figure 5

question 65

Multiple Choice

Refer to the information provided in Figure 5.6 below to answer the question that follows. Figure 5.6
-Refer to Figure 5.6. The market is initially in equilibrium at the intersection of the demand curve and supply curve S₂. If supply shifts from S₂ to S₁, which of the following statements is true?

• A) Price will still serve as a rationing device causing quantity supplied to exceed 12 pizzas.
• B) There is no need for price to serve as a rationing device in this case because the new equilibrium quantity is less than the original equilibrium quantity.
• C) Price will still serve as a rationing device causing quantity demanded to rise from 10 to 12 pizzas.
• D) The market cannot move to a new equilibrium unless demand shifts at the same time that supply shifts.

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Definitions:

Keynesian View

An economic theory stating that active government intervention in the marketplace and monetary policy is the best method of ensuring economic growth and stability.

Supply-Side View

An economic perspective emphasizing the importance of increasing production and supply as a key to economic growth, price stability, and employment.

Balanced Budget

A budget where revenues equal expenditures, resulting in no deficit or surplus.

New Classical View

An economic theory that emphasizes the importance of supply-side factors, rational expectations, and market-clearing prices.