-In the Above Figure, Market Equilibrium at Point E Yields

question 193

Multiple Choice

-In the above figure, market equilibrium at point E yields the quantity X. The quantity X* is socially optimal amount. The government can achieve the optimal outcome by

• A) setting the price at P1.
• B) establishing a tax of P3 - P1 per unit of the good sold.
• C) establishing a tax of P3 - P2 per unit of the good sold.
• D) setting the price at P4.

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Definitions:

Slump

A significant, sudden decrease in economic activity or market prices, often reflecting a downturn in a particular industry or the economy as a whole.

Avoidance

The act of preventing something from happening or ensuring that one does not become involved in it.

Erroneous Expression

A mistake in speech or writing that deviates from what is correct, true, or accurate.

Reformation

Reformation is a judicial remedy used to correct or modify a written contract or document that does not accurately reflect the true intentions of the parties due to a mistake, misrepresentation, or fraud.