When there is an increase in the number of firms, what is the impact on demand and supply curve?
Answer & explanation
Correct answer: option 3
The correct answer is Option 3: Supply curve shifts towards right and demand curve does not change
- An increase in the number of firms means more producers are supplying the commodity.
- This leads to an increase in market supply, shifting the supply curve to the right.
- The demand curve remains unchanged because the number of consumers and their preferences do not change due to an increase in firms.