Refer to the Following Graph

question 165

Multiple Choice

Refer to the following graph. A $4 tax is levied on suppliers (represented by S₀ without the tax) . From the graph and tax structure you know that the:

• A) elasticities of supply and demand are about the same.
• B) elasticity of supply is less than the elasticity of demand.
• C) elasticity of demand is less than the elasticity of supply.
• D) elasticities cannot be calculated.

Understand the significance of economic profits and normal profits in the decision-making process of firms in purely competitive markets.

Describe the relationship between market demand, economic profits/losses, and industry adjustments in the long run.

Analyze the impact of consumer demand on purely competitive industries and the resultant equilibrium.

Explain the concept of short-run and long-run equilibrium within purely competitive markets.

---

Definitions:

Return

The process of bringing back a purchased product to the seller or store, often for a refund or exchange.

Monopoly Firm

A company that is the sole provider of a product or service in a market, resulting in a lack of competition.

Price Maker

A market participant with the power to influence the price of a good or service by altering its supply, demand, or both.

Downward Sloping

Refers to a graph line that shows a decrease in price leading to an increase in demand, commonly illustrated in supply and demand curves.