In 1985 a desert community stopped pumping water from a 1000 foot well because it had run dry. In 2005 the price of water doubled. The community then drilled the well deeper and started pumping again. In this community,
A. higher water prices can reduce quantity demanded but cannot increase quantity supplied.
B. the supply of water is perfectly inelastic because it is a finite resource.
C. water production is characterized by increasing opportunity costs.
D. markets cannot reach equilibrium because there is a persistent shortage of water.
Answer: C
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What will be an ideal response?
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