The price effect is a term used in economics that describes how changes in the price of a good or

service affects demand for that good or service. The price effect can be positive or negative,
depending on how the change in price affects demand.
Price effect refers to the tendency of a change in the price of a good or service to cause a change in
demand for that good or service. Price effect can be positive (moredemand for the good or service
because of the price increase), negative (less demand for the good or service because of the price
decrease), or neutral (no change in demand for the good or service due to price changes).

Some common price effects are:

1. Price Effect on Consumption: When the price of a good rises, consumers tend to reduce their
consumption of that good. The higher price makes it more expensive for the consumer to purchase
and, as a result, they may choose to purchase other goods or services that are cheaper.

2. Price Effect on Production: When the price of a good rises, producers may decide not to produce
the good because it is now more expensive to produce. The higher price may lead to the production
of other goods that are cheaper and more profitable, which may lead to a decrease in the demand for
the good that was increased in price.

3. Price Effect on Behavior: The psychological effects of price changes can also be significant. For
example, when the price of a good rises, consumers may become more willing to pay more for that
good in order to gain an advantage (relative to the competition).

4.
5. The output effect: selling 1 more gallon of water at the going price will raise profit.
6. The price effect: Raising production will increase the total amount sold, which will lower the price
of water and lower the profit on all the other gallons sold.
The larger the number of sellers, the less each seller
is concerned about its own impact on the market price. That is, as the oligopoly
grows in size, the magnitude of the price effect falls. When the oligopoly grows
very large, the price effect disappears altogether. That is, the production deci-
sion of an individual firm no longer affects the market price. In this extreme case,

each firm takes the market price as given when deciding how much to produce.
Oligopoly Q is greater than monopoly Q, because under oligopoly, there is more competition among
firms, which allows for better price discovery and competition. Furthermore, in a market with
oligopoly Q, it is easier for firms to merge and form bigger oligopolies, since they can compete against
each other more effectively. However, oligopoly Q is smaller than competitive Q, because under
oligopoly, there is less total output and a greater share of the market held by a few oligopolists.