Which of the Following Situations Is an Example of General

question 77

Multiple Choice

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

• A) An excise tax is placed on cigarettes reducing the supply of cigarettes and 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:

Discount Rate

The interest rate charged to commercial banks and other depository institutions for loans received from the Federal Reserve's discount window.

Arbitrary Cutoff

A subjective point chosen without any specific criterion or rationale, often in data analysis or reporting.