Multiple Choice
If there are external benefits associated with the consumption of a good or service, which of the following is most likely to occur in a free market without government intervention?
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7. Externalities
Externalities: Social Benefits and Social Costs
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Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
An extraordinarily small crop of farm products due to drought causes which of the following effects in the market?
A
A surplus of farm products in the market
B
An increase in the equilibrium price of farm products
C
No change in the equilibrium price of farm products
D
A decrease in the equilibrium price of farm products
Verified step by step guidance1
Step 1: Understand the concept of supply and demand. A drought reduces the quantity of farm products available, which means the supply curve shifts to the left (a decrease in supply).
Step 2: Recall that when supply decreases while demand remains constant, the new equilibrium is found where the reduced supply curve intersects the demand curve.
Step 3: Analyze the effect of the supply shift on equilibrium price and quantity. A leftward shift in supply typically leads to a higher equilibrium price because fewer goods are available, but demand remains the same.
Step 4: Recognize that the equilibrium quantity will decrease because there are fewer farm products available in the market due to the drought.
Step 5: Conclude that the drought causes an increase in the equilibrium price of farm products, not a surplus or decrease in price.
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