Suppose the Demand Curve for a Product Is Represented by a Typical

question 42

Multiple Choice

Suppose the demand curve for a product is represented by a typical downward-sloping curve.Now suppose the demand for this product decreases.Which of the following statements accurately predicts the resulting decrease in price?

• A)The more elastic the supply curve, the greater the price increase.
• B)The more elastic the supply curve, the smaller the price decrease.
• C)The increase in price is not affected by the elasticity of the supply curve.
• D)The decrease in price will always be proportional to the magnitude of the demand shift.

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Definitions:

Marginal Cost

The financial charge for creating one additional unit of a product or service.

Average Variable Cost

The total variable cost divided by the quantity of output produced, representing the cost of producing one more unit.

Market Price

The contemporary pricing at which a good or service is available for trading in a market context.

Purely Competitive Market

An economic setup marked by the presence of numerous small-sized companies, identical products, and straightforward market entry and exit, culminating in firms accepting prevailing market prices.