Supply Demand QUANTITY For an output level exactly at QE, the value of a unit to a buyer is the cost of a unit to a seller. Suppose a firm that produces for this market is able to dump toxic chemicals into a river next to its factory, which poisons wildlife and harms the health of nearby residents who have no business with the company. This scenario is characterized by , which is an example of PRICE

4) Suppose a market starts in equilibrium; then we observe a decrease in supply and a  decrease in demand simultaneously. What can we say about the new equilibrium? Illustrate.

Assume that the graphs show a competitive market for the product stated in the question. Price aa 0 Price a a 0 2₁*Q₂ Quantity Graph A Graph A E₁ Q₁ Q₂ Quantity Graph C Graph B Graph C E₂ KE₁ Graph D D₁ S₁ U None of the above 52 Price 0 Price E₂ E₁ Q₂ Q₁ Quantity Graph B E2 KE₁ Q₂ Q₁ Quantity Graph D D₁ Select the graph above that best shows the change in the market specified in the following situation: In the market for ramen noodles (an inferior good), when consumers experience a substantial fall in income due to an economic recession. D₂ S₂ O 55

9. Market efficiency and market failure The following graph shows equilibrium in a free market, with equilibrium quantity of QE. * E QUANTITY PRICE For any level of output equal to QE, a buyer values a unit of goods in this market 9. Market efficiency and market failure Supply Demand PRICE The following graph shows equilibrium in a free market, with equilibrium quantity of QE. QUANTITY Suppose now that an individual firm that produces goods in this market has the power to influence market price, leading to an outcome different from the free market equilibrium illustrated in the previous graph. This is an example of due to X Supply Demand For any level of output equal to QE, a buyer values a unit of goods in this market less than Suppose now that an individual firm that produces goods in this market has the pow the free market equilibrium illustrated in the previous graph. This is an example of more than the same amount as welfare the unit will cost a seller. inefficiency the unit will…