Firm X introduces a new good A in the market. The laws of demand and supply hold for this good. The firm produces 500 units of A per month. The good does not have any close substitutes and is priced at $4 per unit. Consumers like this new product and industry analysts expect the price to rise as much as $7 before an equilibrium is reached in this market. At equilibrium, the industry analysts expect quantity demanded and supplied to be 650 units. However, Patrick Clearwater, the operations head at firm X, believes that even at a price of $7 per unit, there will still be a shortage of 100 units. Which of the following, if true, will support Patrick's view? A. There was a price ceiling at $7 which has been removed. B. Good A is an inferior good. C. Price elasticity of supply is actually lower than what is expected by the industry analysts. D. The demand for good A is highly inelastic. E. At a price of $7 per unit, the firm supplies 750 units of good A.
Firm X introduces a new good A in the market. The
A. There was a
B. Good A is an inferior good.
C. Price elasticity of supply is actually lower than what is expected by the industry analysts.
D. The demand for good A is highly inelastic.
E. At a price of $7 per unit, the firm supplies 750 units of good A.
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