Which of the following will cause a decrease in market price? a. A decrease in the...

Which of the following will cause a decrease in market price?

A decrease in the number of sellers of the good

A technological improvement in the production of the good

An increase in the cost inputs for production of the good

The imposition of a binding price floor in the market

Solutions

Expert Solution

The market price decreases when either the supply increases or the demand decreases.

a. A decrease in the number of sellers of the good results in a decrease in the supply of the good and hence, the market price should increase. Option a is incorrect.

b. A technological improvement in the production of the good increases the production capacity and thus results in an increase in the supply. Therefore, the market price should decrease. Option b is correct.

c. An increase in the cost of inputs of production of the good decreases the supply of the good. Therefore, the price should increase. Option C is incorrect.

d. The imposition of a binding price floor in the market - A binding price floor is above the equilibrium market price of a good. Therefore, the price of the good should increase. Option D is incorrect.

Ans: b. A technological improvement in the production of the good

Rahul Sunny answered 1 year ago

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