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Purely competitive industry X has constant costs and its product is an inferior good. The industry is currently in long-run equilibrium. The economy now goes into a recession and average incomes decline. The result will be:

A. an increase in output, but not in the price, of the product.
B. an increase in output and in the price of the product.
C. a decrease in output and in the price of the product.
D. a decrease in the output, but not in the price, of the product.

Respuesta :

Answer:

B. an increase in output and in the price of the product.

Explanation:

  • Higher prices mean lower revenues and vice versa. Therefore the quantity required in the given question is good because the recession will result in a drop in income. This increases the demand curve, thereby increasing the supply yield and increasing the price.
  • Modern supply and demand changes affect both price and quantity. If the supply curve increases, it reduces the supply but leaves constant demand, then the exchange price increases but the quantity decreases.
  • For example, if petrol supplies fall, pump prices are likely to rise.

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