In Pure Competition, If the Market Price of the Product

question 11

Multiple Choice

In pure competition, if the market price of the product is higher than the minimum average cost of the firms, then

• A) some firms will exit the industry and the industry supply will decrease.
• B) other firms will enter the industry and the industry supply will increase.
• C) some firms will exit the industry and the industry supply will increase.
• D) other firms will enter the industry and the industry supply will decrease.

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Definitions:

Equilibrium Price

The price at which the quantity of a good or service demanded by consumers is equal to the quantity supplied by producers.

Effective Price Ceiling

An effective price ceiling is a government-imposed limit on the price that can be charged for a product or service, set below the market equilibrium, leading to shortages.

Equilibrium Price

The price point at which the market's supplied and demanded goods quantities meet.

Surpluses

Occurs when the quantity of a good or service supplied exceeds the quantity demanded at a specific price; the opposite of shortages.