Assume the Market Shown in the Graph Is in Equilibrium

question 94

Multiple Choice

Assume the market shown in the graph is in equilibrium at demand (D) and supply (S₁) . If the supply curve shifts to S₂, total surplus falls by:

• A) $50.
• B) $75.
• C) $150.
• D) $200.

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Definitions:

Aggregate Supply

The total quantity of goods and services that producers in an economy are willing and able to supply at different price levels.

Rational Expectations

An economic theory that suggests individuals make decisions based on their best forecasts using all available information.

Sacrifice Ratio

The measure of the economic cost associated with reducing inflation, typically assessed in terms of the percentage loss in gross domestic product (GDP) for each percentage point decrease in inflation.

Anti-inflation Policy

A set of governmental or central bank strategies aimed at controlling or reducing the rate of inflation in the economy.