Refer to the above figure. A shortage will exist when
A. quantity demanded equals 3.
B. the price equals $10.
C. the price equals $6.
D. the price is between $0 and $6.
Answer: D
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In the classical model, less consumption and more savings would
a. increase aggregate supply and output. b. reduces aggregate demand and output.. c. decrease real interest rates and output. d. cause the price level to rise with no effect on output. e. have no effect on output or the price level.
Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in Wyoming start purchasing their cigarettes in surrounding states. Which of the following principles does this best illustrate?
a. People respond to incentives. b. Rational people think at the margin. c. Trade can make everyone better off. d. Markets are usually a good way to organize economic activity.