Graph 14-8

-Refer to Graph 14-8. When a firm in a competitive market, like the one depicted in panel (a) , observes market price rising from P₁ to P₂, it is most likely the result of:

Question

Graph 14-8 -Refer to Graph 14-8. When a firm in a competitive market, like the one depicted in panel (a), observes market price rising from P₁ to P₂, it is most likely the result of:

Quizplus · Accepted Answer

The increase in market price from P₁ to P₂ indicates an increase in quantity demanded, which suggests an increase in market demand (shift of demand curve from Demand₀ to Demand₁). An increase in market supply (shift of supply curve from Supply₀ to Supply₁) would result in a decrease in market price, not an increase. Entrance or exit of firms would have a long-term effect on market price, not an immediate effect as indicated in the graph.

Graph 14-8 -Refer to Graph 14-8. When a Firm in a Competitive