Which scenario best illustrates the Principle of Competition?

• A. Rapidly rising demand
• B. Excess profit leads to over-supply and reduced value
• C. Market surplus leads to higher price
• D. A small number of buyers controls prices

Answer: (B)

The Principle of Competition shows that when profits are unusually high, new entrants are drawn into the market, increasing supply and driving profits back toward normal levels. The scenario describing excess profit leading to over-supply and reduced value fits this: high profits attract competitors, more goods or services become available, and prices (and profit margins) fall as the market becomes more competitive. In contrast, rising demand tends to push prices up, a market surplus typically lowers prices rather than raises them, and having only a few buyers controlling prices suggests limited competition rather than a competitive market.