2. A key factor in analyzing the industry-level effect of an environmental regulation is to study the so-called market-adjustment (or industry output-adjustment). Suppose that we are looking at the market for orange juice and the market for wine. Assume that the demand for orange juice is relatively inelastic (steeper demand) and the demand for wine is relatively elastic (flatter demand). Let the government introduce industry regulations that raise the marginal cost of production in both industries. For simplicity, assume that the marginal cost rise equally in each industry. a. Draw a graph of the demand curves facing these two industries. Show on your graph how an increase in marginal cost affects the price and output in each industry. Clearly label your graphs and curves.

2. A key factor in analyzing the industry-level effect of an environmental regulation is to study the so-called market-adjustment (or industry output-adjustment). Suppose that we are looking at the market for orange juice and the market for wine. Assume that the demand for orange juice is relatively inelastic (steeper demand) and the demand for wine is relatively elastic (flatter demand). Let the government introduce industry regulations that raise the marginal cost of production in both industries. For simplicity, assume that the marginal cost rise equally in each industry. a. Draw a graph of the demand curves facing these two industries. Show on your graph how an increase in marginal cost affects the price and output in each industry. Clearly label your graphs and curves.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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