Which of the Following Situations Is an Example of General

question 26

Multiple Choice

Which of the following situations is an example of general equilibrium analysis?

• A) An excise tax on cigarettes reduces the supply of cigarettes, leading to higher cigarette prices.
• B) A severe frost destroys a significant portion of the coffee crop, leading to higher coffee prices. The higher coffee prices increase the demand for tea, resulting in higher tea prices. The higher tea prices in turn cause the demand for coffee to rise even more, further increasing the price of coffee.
• C) A decrease in the demand for peanuts causes both the equilibrium price and quantity of peanuts to decrease. As a result, peanut farmers reduce their peanut output and supply decreases.
• D) As fuel costs rise, airlines' costs of production rise. Higher production costs drive profits down, leading to higher air fares and fewer flights.

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Definitions:

Retail Customers

Individuals who purchase goods or services for personal use from retail stores, as opposed to buying for business or resale purposes.

Wholesale Prices

The cost at which goods are sold by wholesalers to retailers, usually lower than the retail price due to the absence of retailer markup.

Wholesalers

Businesses that sell goods in large quantities at lower prices, typically to retailers, other businesses, or professional users, but not directly to the end consumer.

Category Specialists

Retailers or businesses that focus on a specific category of products, offering a wide selection and deep knowledge within that category.