Suppose That the EPA Has Proposed Strict Controls on the Amount

question 16

Multiple Choice

Suppose that the EPA has proposed strict controls on the amount of sulfur that diesel fuel contains.These controls were designed to fully offset the cost of pollution generated by diesel fuel vehicles.The effect of the regulation is estimated to increase the equilibrium price of a gallon of diesel fuel by 10 cents.
Refer to the information given above.Suppose that demand for diesel fuel is perfectly inelastic and supply has a positive slope.The effect of the regulation will _______ than if demand were not perfectly inelastic.

• A)increase price and quantity by more
• B)Increase price by less and reduce quantity by more
• C)decrease price and quantity by more
• D)increase price by more and reduce quantity by less

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Definitions:

Break-Even Volume

The quantity of goods or services sold at which total revenues equal total costs, resulting in neither profit nor loss.

Fixed Costs

Fixed costs refer to the expenses that do not change with the level of production or sales, such as rent, salaries, and insurance.

Revenue

The total amount of money received by a company from its business activities, such as the sale of goods or services, before any expenses are deducted.

Break-Even Volume

The number of units that must be sold for total revenues to equal total costs, resulting in no profit or loss.