In Figure 5-1, S 1 and D illustrate the demand and supply for a product if it were produced in a normal competitive market. Which of the following would be true if the firms in the industry were instead able to get government licensing restrictions to limit competition in the market?A) The restricted market supply would be S 3 , resulting in a lower price and a higher than efficient level of output.B) The restricted market supply would be S 3 , resulting in a higher price and a less than efficient level of output.C) The restricted market supply would be S 2 , resulting in a lower price and a higher than efficient level of output.D) The restricted market supply would be S 2 , resulting in a higher price and a less than efficient level of output.

Question

In Figure 5-1, S 1  and D illustrate the demand and supply for a product if it were produced in a normal competitive market. Which of the following would be true if the firms in the industry were instead able to get government licensing restrictions to limit competition in the market?A)  The restricted market supply would be S 3 , resulting in a lower price and a higher than efficient level of output.B)  The restricted market supply would be S 3 , resulting in a higher price and a less than efficient level of output.C)  The restricted market supply would be S 2 , resulting in a lower price and a higher than efficient level of output.D)  The restricted market supply would be S 2 , resulting in a higher price and a less than efficient level of output.

Matthew Sailor · Accepted Answer

Final Answer : D, Explanation :  When government licensing restrictions limit competition, the supply curve shifts to the left (from S1 to S2), leading to a higher price and a lower quantity of output, which is less than the efficient level.

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