Question

In long-run equilibrium with trade, losses from import competition will force some firms to ______________, increasing demand for the remaining firms' output, which will then cause their demand curves to become ______________ , due to the increased variety of products from _______________.
a. lower prices; more inelastic; new firms entering the industry.
b. leave the industry; flatter; foreign firms.
c. lay off workers; more elastic; the research and development departments in firms.
d. raise prices; steeper; new firms entering the industry.

Answer 1

Answer:

The correct answer is option b.

Explanation:

In an open economy, domestic firms have to face competition from the foreign producers. If firms face losses in the long run, because of import competition, these firms will leave the industry.

As the number of domestic firms get reduced, the demand curve of the other firms will become flatter. This happens because of the foreign firms that bring in a large variety of goods in the domestic market.