Refer to the Above Graph, Which Shows the Market for Bicycles

question 116

Multiple Choice

Refer to the above graph, which shows the market for bicycles. S₁ and D₁ are the original supply and demand curves. D₂ and D₃ and S₂ and S₃ are possible new demand and supply curves. Starting from the initial equilibrium (point 1) , what point on the graph is most likely to be the new equilibrium after a sharp increase in traffic accidents involving cyclists, and the payment of subsidies to bicycle producers?

• A) 3
• B) 4
• C) 5
• D) 6

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Definitions:

Absolute Advantage

A situation where a producer can produce more goods using the same amount of resources or less than other producers.

Production Possibilities

A graphical representation of the maximum number and combinations of goods and services that can be produced from a fixed set of resources.

Absolute Advantage

A situation where a country, individual, or firm can produce more of a good or service with the same amount of resources compared to other entities.

Specialize

When individuals or businesses focus on producing a limited range of goods or services to increase efficiency and output quality.