If the Market Price Rises from P0 to P2 in the Above

question 283

Multiple Choice

If the market price rises from P0 to P2 in the above figure, then there is a

• A) surplus equal to the distance Q0, Q2.
• B) surplus equal to the distance Q1, Q2.
• C) shortage equal to the distance Q0, Q2.
• D) shortage equal to the distance Q1, Q2.

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Definitions:

Diseconomies

Negative effects on costs that occur as a business expands, typically resulting from inefficiencies that stem from managerial and operational challenges.

Expansion Path

A curve in input space showing how the optimal mix of inputs changes as the firm expands output.

Fixed Proportion

Refers to a production process where inputs must be used in strict, unchanging ratios to produce an output.

Capital

Assets used for the production of goods and services, such as buildings, machinery, and equipment.