Figure 14-9
-Refer to Figure 14-9.Suppose a firm in a competitive market,like the one depicted in panel (a),observes market price rising from P1 to P2.Which of the following could explain this observation?

Question

Figure 14-9  
-Refer to Figure 14-9.Suppose a firm in a competitive market,like the one depicted in panel (a),observes market price rising from P1 to P2.Which of the following could explain this observation?

Quizplus · Accepted Answer

If market price increased from P1 to P2, it means that the quantity demanded by consumers has increased. This could only happen if there was an increase in market demand. Option A is incorrect because the entry of new firms would increase market supply, which would lead to a decrease in price, not an increase. Option B is also incorrect because the exit of existing consumers would decrease market demand, leading to a decrease in price. Option C is incorrect because an increase in market supply would lead to a decrease in price, rather than an increase.