Question: In a competitive industry high prices in response to a

“In a competitive industry‚ high prices in response to a positive demand shock prevent higher prices.” Explain whether this statement is true‚ false or uncertain in the context of the competitive industry model developed in this chapter. To help your analysis‚ think what would happen if government policymakers precluded suppliers from raising their prices in the wake of a positive demand shock (e. g.‚ local suppliers of lumber were prohibited from raising the price of their products in the wake of a tornado ravaging a community and the resulting need to rebuild homes in the community).

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