Figure 5-1

-In Figure 5-1,S₁ and D illustrate the demand and supply for a product if it were produced in a normal competitive market.Which of the following would be true if the firms in the industry were instead able to get government licensing restrictions to limit competition in the market?

Question

Figure 5-1
 
-In Figure 5-1,S₁ and D illustrate the demand and supply for a product if it were produced in a normal competitive market.Which of the following would be true if the firms in the industry were instead able to get government licensing restrictions to limit competition in the market?

Quizplus · Accepted Answer

When firms in the industry are able to get government licensing restrictions to limit competition in the market, it reduces the supply of the product. Therefore, the restricted market supply would be S₂ which would result in a higher price and a less than efficient level of output. This is because the restricted competition allows the firms to charge higher prices due to reduced supply. Additionally, the output would be less than efficient because the restricted competition reduces the incentives for firms to produce at the lowest point on the supply curve.

Figure 5-1 -In Figure 5-1,S₁ and D Illustrate the Demand and Supply