Scenario 15-1 Consider the Market for Water in a Small Town in Town

question 164

Multiple Choice

Scenario 15-1
Consider the market for water in a small town in the Old West.Assume that the only source of water is the underground aquifer that lies directly below the town.Wells are used to supply water to the entire town.
-Refer to Scenario 15-1.If dozens of residents have their own wells,which statement most adequately describes the behaviour of sellers of water

• A)Because water is a necessity of life, there will be no decline in the quantity of water consumed, regardless of how high the price is raised.
• B)Sellers will be able to charge a premium for the water.
• C)The price of a litre of water will exceed its marginal cost.
• D)The price of a litre of water will be driven to equal its marginal cost.

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Definitions:

Budget Constraint

An equation that represents all combinations of goods and services a consumer can afford, given their income and the prices of the goods.

Income

The financial gain earned or received over a period of time, typically through work, investments, or business ventures.

Apples

A fruit produced by an apple tree, commonly enjoyed worldwide and used in various culinary dishes.

Bananas

A tropical fruit that is elongated and curved, with soft pulpy flesh rich in starch, enclosed in a rind which may be green, yellow, or brown when ripe.