Consider a Market That Is in Equilibrium

question 10

Multiple Choice

Consider a market that is in equilibrium. If the market experiences both an increase in demand and an increase in supply:

• A) the equilibrium price and quantity will rise.
• B) the equilibrium quantity will rise, but the change in the equilibrium price cannot be predicted.
• C) the equilibrium price will rise, but the change in the equilibrium quantity cannot be predicted.
• D) the equilibrium price and quantity will fall.

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Definitions:

Negative Externality

A negative externality is a cost imposed on a third party not involved in the production or consumption of a good or service, such as pollution.

Positive Externality

A beneficial effect experienced by a third party who did not choose to incur that benefit, often resulting from an individual's or firm's actions.

Corrective Tax

A tax designed to internalize externalities, effectively correcting market outcomes that might otherwise result in social inefficiency.

Command-And-Control Policies

Regulatory strategies where the government sets specific limits and controls on emissions or discharges, often requiring technology or methods to be used.