An Increase in Demand Will Increase Prices Most When Supply

question 153

Multiple Choice

An increase in demand will increase prices most when supply is

• A)elastic.
• B)unit elastic.
• C)inelastic (but not perfectly inelastic).
• D)perfectly inelastic.

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Definitions:

Monopoly Firms

Companies that are the sole provider of a product or service in a market, having exclusive control over supply and market competition.

Profit Maximization

The process by which a firm determines the price and output level that returns the greatest profit, considering its cost structure and the market demand.

Purely Competitive

A market structure characterized by a large number of small firms, identical products, easy entry and exit, and perfect information, leading to price taking behavior.

Market Price

The price at which a good or service is offered in the marketplace where demand meets supply.