Choose the letter of the curve in Figure 1.2 that best represents a production possibilities curve for two goods for which there are constant opportunity costs:

If taxes are cut, there is

A) an increase in aggregate demand and the AD curve shifts rightward. B) a decrease in aggregate demand and the AD curve shifts leftward. C) an increase in the quantity of real GDP demanded and a movement up along the AD curve. D) a decrease in the quantity of real GDP demanded and a movement down along the AD curve. E) no change in aggregate demand, only a change in potential GDP.

The figure above shows the marginal revenue, marginal cost, and demand curves for an airline offering daily flights between Los Angeles and Toronto. If the airline is regulated using a marginal cost pricing rule total surplus will be ________

A) $100,000 B) $60,000 C) $80,000 D) $20,000