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

If the industry is able to get government licensing restrictions to limit competition in the market, then the restricted market supply would be S₂ instead of S₁. This is because the limited competition would allow firms to produce less output and charge a higher price, resulting in a less than efficient level of output. Thus, the correct option is D.

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