Question

Camille's Creations and Julia's Jewels both sell beads in a competitive market. If at the market price of $5 both are running out of beads to sell (they can't keep up with the quantity demanded at that price), then we would expect both Camille's and Julia's to ______________________________.
a) raise their price and increase their quantity supplied
b) raise their price and reduce their quantity supplied
c) lower their price and reduce their quantity supplied
d) lower their price and increase their quantity supplied

Answer 1

Answer:

The correct answer is option a.

Explanation:

Camille's Creations and Julia's Jewels are both selling beads in a competitive market. The market price of beads is $5 for both.

At this price level, they can't keep up with the quantity demanded. This implies that the quantity they are supplying is lower than what is being demanded.

We know that there's a positive relationship with the price level and the quantity supplied of a firm. So to increase the quantity supplied, the firm will increase its price. It will then reach the point of equilibrium where quantity supplied and quantity demanded are equal.