Assume Declining Profits in the Market for Internet Service Force

question 65

Multiple Choice

Assume declining profits in the market for Internet service force several firms in the area to drop out of the market.Which of the following best describes the effect of the reduction in the number of service providers and the subsequent adjustment of the market to the new equilibrium price and quantity?

• A)Quantity supplied would decrease, creating excess supply at the initial equilibrium price. Demand would then decrease until quantity demanded and quantity supplied are once again equal.
• B)Quantity supplied would decrease, creating excess demand at the initial equilibrium price. Demand would then decrease until quantity demanded and quantity supplied are once again equal.
• C)Supply would increase, creating excess demand at the initial equilibrium price. Price would then rise, causing quantity demanded to decrease and quantity supplied to increase until a new equilibrium is reached.
• D)Supply would decrease, creating excess demand at the initial equilibrium price. Price would then rise, causing quantity demanded to decrease and quantity supplied to increase until a new equilibrium is reached.

---

Definitions:

Demand Curves

Graphical representations showing the relationship between the price of a good and the quantity demanded, typically downward sloping.

Monopolistically Competitive

A scenario where numerous companies compete in the same industry by offering slightly unique products or services, giving consumers choices.

Elastic

Describes a situation in economics where the quantity demanded or supplied of a good changes significantly as its price changes.

Industry Entry

The process by which a new competitor enters an existing market, often influenced by barriers to entry and initial costs.