Assume the Market Is in Equilibrium in the Graph Shown

question 29

Multiple Choice

Assume the market is in equilibrium in the graph shown at demand D and supply S₁. If the supply curve shifts to S₂, and a new equilibrium is reached, which of the following is true?

• A) Consumer surplus increases, and total surplus increases.
• B) Consumer surplus decreases, and total surplus increases.
• C) Consumer surplus increases, and total surplus decreases.
• D) Consumer surplus decreases, and total surplus decreases.

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Definitions:

Command-and-control Regulation

Regulatory approach where the government sets specific standards or limitations on the activities of businesses, often related to environmental or safety measures.

Pollution Permits

Allowances provided by government regulations that permit companies to emit a certain level of pollutants.

Global Warming

The long-term increase in Earth's average surface temperature, primarily due to human activities such as fossil fuel burning.

Invisible Hand

A term coined by economist Adam Smith to describe the self-regulating nature of the marketplace where individuals' pursuit of self-interest leads to societal benefits.