Asked by Vanessa Recamadas on May 02, 2024
Verified
Consider the following statements when answering this question: I. Increases in the demand for a good, which is produced by a competitive industry, will raise the short-run market price.
II) Increases in the demand for a good, which is produced by a competitive industry, will raise the long-run market price.
A) I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) I and II are false.
Competitive Industry
An industry where no single firm has a large market share and each firm must compete on price, quality, and innovation to attract customers.
Market Price
The existing rate at which a product or service is available for buying or selling within a marketplace.
Demand
Demand is the quantity of a good or service that consumers are willing and able to purchase at various prices within a given time frame, reflecting their desire and purchasing power.
- Grasp the influence of demand and supply factors on the determination of market prices and quantities over short and extended durations.
Verified Answer
YG
Yakshi GuptaMay 06, 2024
Final Answer :
B
Explanation :
In the short-run, an increase in demand for a good produced by a competitive industry will result in a higher market price as firms have a limited capacity to increase their output. However, in the long-run, firms can increase their production capacity through investments in new technology or factories, and as a result, the market price will return to its original level. Therefore, statement I is true in the short-run but not in the long-run. Statement II is false because the long-run market price will be the same as the original price.
Learning Objectives
- Grasp the influence of demand and supply factors on the determination of market prices and quantities over short and extended durations.