The table shows the demand and supply schedules for sandbags before and during a

Question

The table shows the demand and supply schedules for sandbags before and during a major flood If the government takes no action, the allocation of resources IS Quantity Quantity demanded demanded Quantity before the flood and during the flood. (dollars perbefore flood during flood supplied bag) thousands of bags 60 O A. efficient, efficient 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 35 30 25 20 15 10 B. inefficient inefficient O C. efficient inefficient O D. sometimes efficient and sometimes inefficient 10 15 20 25 30 35 40 50 45 35 30 25 20 sometimes efficient and sometimes inefficient O E. inefficient, efficient With government intervention that leads to overproduction, the outcome is_ efficient. O A. sometimes less and sometimes more B. less O C. more

Explanation / Answer

When government takes no action then market will clear automatically and thus there will be efficient outcome. However the equilibrium will change.

Initially the equilibrium will at price=2, and during flood price=3.

But market will be efficient in both scenario.

When government intervene that leads to overproduction, then the outcome is less efficient.

Ans is B

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