1. ldentify whether the market demand or supply curve will shift right or left o
ID: 1111410 • Letter: 1
Question
1. ldentify whether the market demand or supply curve will shift right or left or will stay the same in the following the cases a. Firms in an industry are required to pay a fine for their cmissions of carbon dioxide. b. Companies are sued for polluting the water in a river. c. Power plants in a specific city are not required to address the impact of their emissions on the quality of the air d. Companies that use fracking to remove oil and gas from rock are required to clean up the damage. e. A waste water cleaning plant is forced to use perfumes before releasing steam into the air. 2. Indicate what will happen to equilibrium price in all the above cases.Explanation / Answer
(1)
(a) Payment on emissions will increase the cost of business for firms, so they will lower output. Market supply will fall, shifting market supply curve to left. Market demand will be unchanged.
(b) Being sued for creating pollution will make business environment much tough, which will increase the cost of business for firms, so they will lower output. Market supply will fall, shifting market supply curve to left. Market demand will be unchanged.
(c) Relaxed regulation on emission will make business environment much lenient, which will decrease the cost of business for firms, so they will increase output. Market supply will rise, shifting market supply curve to right. Market demand will be unchanged.
(d) Requirement of cleaning up of damage will increase the cost of business for firms, so they will lower output. Market supply will fall, shifting market supply curve to left. Market demand will be unchanged.
(e) Requirement of using perfume will increase the cost of business for firms, so they will lower output. Market supply will fall, shifting market supply curve to left. Market demand will be unchanged.
(2)
When market supply increases, price decrease and when market supply decreases, price increases. Therefore,
(a) Equilibrium price increases.
(b) Equilibrium price increases.
(c) Equilibrium price decreases.
(d) Equilibrium price increases.
(e) Equilibrium price increases.
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