Final answer:
An increase in demand in an industry with many competing firms leads to increased competition as the demand curve shifts to the right. New suppliers enter the market, which can eventually lead to market saturation if supply significantly exceeds demand. Technological improvements that reduce costs can also increase supply, potentially decreasing prices and contributing to saturation.
Step-by-step explanation:
When an industry with many competing firms experiences an increase in demand, the expectation is that there would be increased competition.
As demand increases, there's a rightward shift in the demand curve. The heightened demand creates opportunities for profit, leading to an influx of new suppliers in the market hoping to capitalize on the potentially higher profits. This increase in suppliers, in turn, intensifies competition amongst firms. Initially, prices may rise due to increased demand, but as supply catches up, prices tend to stabilize or possibly decrease due to competition.
Market saturation occurs when the amount of a product or service available in the market has been maximized in the current state of the marketplace. As new firms enter the market and existing firms expand their production, the market can become saturated, which implies that further increases in supply would not be profitable.
Furthermore, an improvement in technology that reduces production costs or an increase in supply can also change market dynamics. Technological advancements can lead to a rightward (or downward) shift in the supply curve, which allows firms to supply more at every price level or supply the same quantity at a lower price. As supply increases, this may put downward pressure on prices and could lead to market saturation if supply greatly exceeds demand.