Last Year a Pestilential Fungus Ravaged the Cocoa Fields

question 5

Multiple Choice

Last year a pestilential fungus ravaged the cocoa fields.The price of chocolate has risen abruptly to $1 per ounce.The government is considering emergency measures to aid suffering chocolate addicts.One plan being considered is the Chocolate Relief Plan (CRP) .This plan would set a price ceiling of $.80 per ounce on chocolate.This would cause a shortage, so the CRP will limit consumption to no more than 10 ounces of chocolate per person per week.At $.80 per ounce, enough chocolate would be produced for everyone to have 10 ounces.Jill buys less than 10 ounces per week at $1 per ounce but would buy more than 10 ounces if the price dropped to $.80.

• A)Jill is definitely better off without the CRP.
• B)Jill is better off without the CRP if $1 is the competitive equilibrium price without the CRP.
• C)Jill is better off with CRP only if the industry is monopolized and the price exceeds marginal cost in the absence of the CRP.
• D)Jill is definitely better off with the CRP.
• E)None of the above.

---

Definitions:

Long-Term Debt

Financial obligations of a borrowing entity that are due for repayment in more than one year's time.

Fixed Stream of Income

Income generated from investments that provide a constant amount of money at regular intervals.

Hang Seng

Refers to the Hang Seng Index, a stock market index in Hong Kong representing the performance of the largest companies listed on the Hong Kong Stock Exchange.

Stock Markets

Platforms where shares of publicly-held companies are bought and sold, contributing to the allocation of capital in an economy.