Suppose that the EPA has proposed strict controls on the amount of sulfur that diesel fuel contains. These controls were designed to fully offset the cost of pollution generated by diesel fuel vehicles. The effect of the regulation is estimated to increase the equilibrium price of a gallon of diesel fuel by 10 cents. Assuming that the supply of diesel fuel has a positive slope and demand has a negative slope, the quantity of diesel fuel sold after imposition of the regulation will:
A)remain the same.
B)increase.
C)decrease.
D)decrease only if diesel fuel is a normal good.

Question

Quizplus · Accepted Answer

With conventionally-sloped demand and supply curves, a vertical shift upward in cost will lead to a new equilibrium with a higher price and lower quantity.

Suppose That the EPA Has Proposed Strict Controls on the Amount