Suppose Antitheft Auto Alarms Are Produced in a Price-Taker Market

question 93

Multiple Choice

Suppose antitheft auto alarms are produced in a price-taker market that is initially in long-run equilibrium. It is estimated that only 23 percent of all autos have alarms. Due to rising auto theft, Congress mandates alarms in every vehicle. Assume complete compliance. If the industry is an increasing cost industry, price will

• A) increase in both the short run and long run.
• B) decrease in both the short run and long run.
• C) increase in the short run but not in the long run.
• D) decrease in the short run but not in the long run.

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Definitions:

Budget Line

A line that shows the different combinations of two products a consumer can purchase with a specific money income, given the products’ prices.

Marginal Utility

The additional satisfaction or utility a consumer gets from consuming one more unit of a good or service.

Total Utility

The total satisfaction received from consuming a particular quantity of a good or service.

Budget Line

A graphical representation of all possible combinations of two goods that a consumer can purchase with a given income and prices of the goods.