If new manufacturers enter the computer industry, what is the most likely effect on the market equilibrium in a competitive market?

• A. The demand for computers increases, causing the equilibrium price to rise.
• B. The supply of computers increases, leading to a lower equilibrium price.
• C. The demand for computers decreases, causing the equilibrium price to fall.
• D. The supply of computers decreases, resulting in a higher equilibrium price.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the market structure described, which is a competitive market where many manufacturers produce similar products, such as computers.
2. Step 2: Recognize that when new manufacturers enter the industry, the total quantity of computers supplied at each price increases. This means the supply curve shifts to the right.
3. Step 3: Recall the law of supply and demand: an increase in supply, with demand held constant, leads to a surplus at the original price.
4. Step 4: To eliminate the surplus, the market price will adjust downward, moving toward a new equilibrium where quantity demanded equals quantity supplied.
5. Step 5: Conclude that the entry of new manufacturers increases supply, which lowers the equilibrium price and increases the equilibrium quantity in the market.