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Assume D1 reflects private benefits from consumption and assume S1 reflects private costs of production. If we begin with demand curve D1 and supply curve S1 in the figure above and external costs are incorporated into this market, then Group of answer choices government should subsidize its production and shift supply from S1 to S2. the vertical distance between S1 and S2 equals external costs. price will increase from P1 to P4. underproduction equals Q3 minus Q1. price will rise from P1 to P3.

Assume D1 reflects private benefits from consumption and assume S1 reflects private costs of production. If we begin with demand curve D1 and supply curve S1 in the figure above and external costs are incorporated into this market, then Group of answer choices government should subsidize its production and shift supply from S1 to S2. the vertical distance between S1 and S2 equals external costs. price will increase from P1 to P4. underproduction equals Q3 minus Q1. price will rise from P1 to P3.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Assume D1 reflects private benefits from consumption and assume S1 reflects private costs of production. If we begin with demand curve D1 and supply curve S1 in the figure above and external costs are incorporated into this market, then

Group of answer choices
government should subsidize its production and shift supply from S1 to S2.
the vertical distance between S1 and S2 equals external costs.
price will increase from P1 to P4.
underproduction equals Q3 minus Q1.
price will rise from P1 to P3.
The image illustrates a supply and demand graph commonly used in economics to determine the equilibrium price and quantity in a market. The graph features intersecting supply and demand curves, each labeled to show shifts in the market. ### Elements of the Graph: - **Axes:** - The vertical axis represents *Price*. - The horizontal axis represents *Quantity*. - **Supply Curves:** - **S1**: The initial supply curve. - **S2**: A new supply curve after a decrease in supply, shifted to the left of S1. - **Demand Curves:** - **D1**: The initial demand curve. - **D2**: A new demand curve after an increase in demand, shifted to the right of D1. ### Intersections: - The curves intersect at multiple points, each representing a different scenario of supply and demand: 1. **Initial Equilibrium (S1 and D1):** - Occurs at price level P2 and quantity Q2. 2. **New Equilibrium After Demand Increase (S1 and D2):** - Occurs at price level P3 and quantity Q3. 3. **New Equilibrium After Supply Decrease (S2 and D1):** - Occurs at price level P1 and quantity Q1. 4. **Combined Shifts Equilibrium (S2 and D2):** - Occurs at price level P4 and quantity Q4. ### Observations: - The shift from D1 to D2 indicates an increase in demand, resulting in higher prices and quantities at the new equilibrium point. - The shift from S1 to S2 suggests a decrease in supply, leading to higher prices and lower quantities at the new equilibrium point. - The equilibrium price and quantity can vary significantly with changes in supply and demand. This graph is useful for visually understanding how market dynamics such as shifts in supply and demand affect equilibrium price and quantity.
Transcribed Image Text:The image illustrates a supply and demand graph commonly used in economics to determine the equilibrium price and quantity in a market. The graph features intersecting supply and demand curves, each labeled to show shifts in the market. ### Elements of the Graph: - **Axes:** - The vertical axis represents *Price*. - The horizontal axis represents *Quantity*. - **Supply Curves:** - **S1**: The initial supply curve. - **S2**: A new supply curve after a decrease in supply, shifted to the left of S1. - **Demand Curves:** - **D1**: The initial demand curve. - **D2**: A new demand curve after an increase in demand, shifted to the right of D1. ### Intersections: - The curves intersect at multiple points, each representing a different scenario of supply and demand: 1. **Initial Equilibrium (S1 and D1):** - Occurs at price level P2 and quantity Q2. 2. **New Equilibrium After Demand Increase (S1 and D2):** - Occurs at price level P3 and quantity Q3. 3. **New Equilibrium After Supply Decrease (S2 and D1):** - Occurs at price level P1 and quantity Q1. 4. **Combined Shifts Equilibrium (S2 and D2):** - Occurs at price level P4 and quantity Q4. ### Observations: - The shift from D1 to D2 indicates an increase in demand, resulting in higher prices and quantities at the new equilibrium point. - The shift from S1 to S2 suggests a decrease in supply, leading to higher prices and lower quantities at the new equilibrium point. - The equilibrium price and quantity can vary significantly with changes in supply and demand. This graph is useful for visually understanding how market dynamics such as shifts in supply and demand affect equilibrium price and quantity.
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