If a market is allowed to adjust freely to its equilibrium price and quantity, then an increase in demand will

a. increase producer surplus.
b. reduce producer surplus.
c. not affect producer surplus.
d. Any of the above are possible.


a

Economics

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In the presence of positive externalities, a free market will choose a price which is too ____ and produce an output which is too ____ compared with the social optimum.

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Exhibit 3A-2 Comparison of Market Efficiency and Deadweight Loss As shown in Exhibit 3A-2, if the market price falls from P1 to P2, then:

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Economics