Assume in a Competitive Market That Price Is Initially Below

question 293

Multiple Choice

Assume in a competitive market that price is initially below the equilibrium level. We can predict that price will

• A) decrease, quantity demanded will decrease, and quantity supplied will increase.
• B) decrease and quantity demanded and quantity supplied will both decrease.
• C) increase, quantity demanded will increase, and quantity supplied will decrease.
• D) increase, quantity demanded will decrease, and quantity supplied will increase.

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Definitions:

Fixed Expenses

Fixed expenses are costs that do not fluctuate with changes in production level or sales volume, including lease payments and insurance.

Volume

The number of units of a product or service sold or produced.

CM Ratio

The CM Ratio, or Contribution Margin Ratio, is a financial metric that shows the proportion of sales revenue that exceeds variable costs, indicating the amount available to cover fixed costs and generate profit.

Fixed Expenses

Costs that remain constant for a set period and do not vary with changes in activity level, production volume, or sales, such as lease payments and utility bills. This is a rephrased definition of Fixed Costs.