Suppose a Market Is Initially Competitive with Many Firms Selling

question 5

Multiple Choice

Suppose a market is initially competitive with many firms selling an identical product. Over time, however, suppose the merging of firms results in the market being served by only three or four firms selling this same product. As a result, we would expect

• A) an increase in market output and an increase in the price of the product.
• B) an increase in market output and an decrease in the price of the product.
• C) a decrease in market output and an increase in the price of the product.
• D) a decrease in market output and a decrease in the price of the product.

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Definitions:

Perfectly Elastic

Describes a situation where the quantity demanded or supplied of a product responds infinitely to even the smallest change in price.

Inelastic

Refers to a situation where the demand or supply of a good or service is relatively unresponsive to changes in price.

Price Effect

The impact on consumer demand and supply of goods caused by changes in the price of a product or service.

Quantity Effect

The impact on the total quantity bought or sold in a market as a result of changes in price.