Refer to the Provided Supply and Demand Graph

question 213

Multiple Choice

Refer to the provided supply and demand graph. S₁ and D₁ represent the current market supply and demand, respectively. S₂ and D₂ represent the socially optimal supply and demand. One way that the government could shift supply to its socially optimal level is to

• A)tax the sellers.
• B)subsidize the buyers.
• C)provide the product.
• D)regulate the production of the good.

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Definitions:

Productive Efficiency

A state where a system can't produce more of one good without reducing the output of another, utilizing resources in the most cost-effective way.

Economic Profit

The discrepancy between the total sales of a corporation and its cumulative expenditures, including both manifest and concealed costs.

Productive Inefficiency

A situation in which a firm or economy is not producing goods and services at the lowest possible cost, often due to misallocation of resources or other factors.

Marginal Cost

The monetary cost of manufacturing one more unit of a good or service.