Suppose that newspaper companies are now required to use recycled paper, which is more expensive than new paper. Which of the following is most likely to result if the newspaper industry is highly competitive?
A) The firms' costs rise, resulting in positive economic profit in the short run and, hence, the industry supply curve shifts rightward in the long run.
B) The firms' costs rise, resulting in economic losses in the short run and, hence, the industry supply curve shifts rightward in the long run.
C) The firms' costs rise, resulting in economic losses in the short run and, hence, the industry supply curve shifts leftward in the long run.
D) The industry supply curve shifts leftward in the short run, causing permanent long-run economic losses.
Question 2
Why does the problem of the big tradeoff arise when the government engages in the process of redistributing income using taxes and transfers?
What will be an ideal response?
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