Question

Suppose that the organic-produce industry is composed of a large number of small firms. In recent
years, these firms have suffered economic losses, and many sellers have left the industry. Economic
theory suggests that these conditions will
a) shift the demand curve outward so that price will rise to the level of production cost.
b) cause the remaining firms to collude so that they can produce more efficiently.
c) cause firms in the organic-produce industry to suffer long-run economic losses.
d) cause the market supply to decline and the price of organic produce to rise.

Answer 1

Answer:

The correct answer is option d.

Explanation:

An industry is comprised of a large number of small firms.  

Because of losses, many firms have left the industry.  

This will cause the industry supply to decline.  

The industry supply curve will move to the left.  

The new supply curve will intersect the demand curve at a higher point.

This leftward shift in the supply curve will cause the equilibrium price to increase and equilibrium quantity to decline.