In long-run equilibrium with trade, losses from import competition will force some firms to ______________, increasing demand for the remaining firms' output, which will then cause their demand curves to become ______________, due to the increased variety of products from _______________.
A) raise prices; steeper; new firms entering the industry
B) leave the industry; flatter; foreign firms
C) lower prices; more inelastic; new firms entering the industry
D) lay off workers; more elastic; the research and development departments in firms

Question

Quizplus · Accepted Answer

In the long-run equilibrium with trade, firms that cannot compete with foreign imports will leave the industry, resulting in a decrease in supply and higher prices for domestic producers who remain. This is due to the fact that the remaining firms will enjoy increased demand for their output, as consumers switch to these domestic firms as a result of the reduction in competition from foreign imports. This means that the remaining firms' demand curves will become flatter, since there will be more firms producing similar products (rather than a monopolistic position held by fewer firms).

In Long-Run Equilibrium with Trade, Losses from Import Competition Will