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What could happen if retailers decide to decrease prices? (Ex. Would it lead to market failure?...

What could happen if retailers decide to decrease prices? (Ex. Would it lead to market failure? Surplus or shortage?) What should be done in response to their actions?

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Answer #1

If retailers decide to decrease their prices the demand for their goods would increase rapidly. Their actions would be -

They will earn high profits only when they will be able to meet the supply as per the demand rise which is difficult in the short run. If not done they will not earn high profits for long and will be forced to come back to their earlier prices or there would surely be a market failure. Allthough they can continue with a lower price if they are able to maintain the supply, which will be possible in the long run easily.

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