When consumer demand for a good produced in a price-taker market decreases,
A) firms in the industry will continue to produce at the same output levels as before.
B) total market output will generally rise, but each individual firm will reduce its output.
C) the market price of the good will rise, causing additional resources to flow into the industry in the long run.
D) some firms will shut down in the long run, making their resources available for the production of other goods.

Question

Quizplus · Accepted Answer

In a price-taker market, firms cannot influence the market price of the good they produce. Therefore, when consumer demand decreases, the market price will likely fall. For each individual firm, the marginal revenue will fall below the marginal cost of production, which means they will start to make losses. In the short run, firms may continue to produce at the same output levels, but in the long run, some firms will shut down, making their resources available for other productive uses. This will cause the market supply to decrease, which will eventually lead to a higher market price.

When Consumer Demand for a Good Produced in a Price-Taker