The Reds were dumped out in the third round on Monday night.
A Divock Origi goal was not enough as Ruben Neves’ stunner just a few minutes later saw Wolves through.
Jurgen Klopp rested several key players for the trip to Molenieux, including Mohamed Salah, Roberto Firmino and Jordan Henderson.
Sarah and Firmino came on late in the game as Liverpool attempted to salvage the tie, but were unable to overcome the deficit.
Liverpool are also out of the Carabao Cup, meaning their only chances of a trophy this season are the Premier League and the Champions League.
Klopp’s side are still top of the league, despite losing their unbeaten record against Manchester City on January 2.
And former Arsenal man Merson explained that defeat against Wolves gives them a chance to focus their attentions elsewhere.
“I just think it’s another game out the way,” he said on The Verdict.
“They’ve got a two-week break after playing a couple more league games and recharge their batteries.
“They’re in an unbelievable position to make history, they haven’t won the league in 29 years.
“Don’t get carried away and start thinking about the double, concentrate on the league.
“As long as it doesn’t affect the players’ thinking, two defeats on the trot, but they’ve just been beaten by Man City, one of the best teams in the world, and made nine changes tonight.
“For me, it could be the best thing that happened to them.”
Liverpool face Bayern Munich in the last 16 of the Champions League in March.
They are still four points clear at the top of the Premier League ahead of Saturday’s trip to Brighton.