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:

Guaranty Contract

A legal agreement wherein a guarantor agrees to fulfill the obligations of a debtor to a lender, should the debtor fail to do so.

Creditor

An entity (person or institution) that lends money or extends credit to another entity, with the expectation of being repaid in the future.

Debtor's Debt

Debtor's debt refers to the monetary obligation owed by a debtor to a creditor, resulting from a loan or another credit agreement.

Real Property

Land and anything permanently attached to it, such as buildings and structures.