Multiple Choice
In the context of competitive markets, why do in-store hiring kiosks help employers save money?
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3. The Market Forces of Supply and Demand
Competitive Markets
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In a competitive market, a product being in great demand is a factor that might encourage businesses to:
A
limit supply to create artificial scarcity
B
decrease prices to attract more buyers
C
reduce advertising expenditures
D
increase production to meet consumer demand
Verified step by step guidance1
Understand the nature of a competitive market, where many firms sell identical products and no single firm can influence the market price significantly.
Recognize that when a product is in great demand, the market price tends to rise due to increased willingness to pay by consumers.
Recall the law of supply: as the price of a good increases, producers are generally willing to supply more of it to maximize profits.
Analyze the options: limiting supply to create artificial scarcity is unlikely in a competitive market because individual firms cannot easily restrict output without losing market share.
Conclude that the most rational response for businesses in a competitive market facing high demand is to increase production to meet consumer demand and take advantage of higher prices.
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