Question

The textile 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. Therefore, 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. shift the market supply left and the price of textiles will rise
D. cause firms in the textile industry to suffer long run economic losses

Answer 1

The correct answer is option C.

Step-by-step explanation:

There are a large number of small firms in the textile industry. Some of these firms have incurred losses and left the industry. This caused the number of suppliers in the industry to decrease.

The overall production and market supply decline as well. This further causes the market supply curve to shift to the left. This leftward shift in the supply curve will cause the price level to increase as the new supply curve intersects the demand curve at a higher point.

The equilibrium quantity in the market will decline.