Suppose that sharply lower coffee prices lead to a decrease in the demand for tea. Tea price decreases, and the tea producers experience short-run economic losses. If the tea industry is a price-taker market, after sufficient time is allowed for the market to adjust fully to the decrease in the demand for tea, one would expect the tea industry's output to

Question

Quizplus · Accepted Answer

In a price-taker market, firms will exit the industry if they are experiencing economic losses. This will decrease the industry's output until the price rises to the level where remaining firms can break even, causing economic losses to disappear.

Suppose That Sharply Lower Coffee Prices Lead to a Decrease