Asked by Olympia Thompson on Jul 13, 2024
Verified
Refer to Figure 14-7. Assume that the market starts in equilibrium at point W in graph (b) . An increase in demand from D0 to D1 will result in
A) a new market equilibrium at point X.
B) an eventual increase in the number of firms in the market and a new long-run equilibrium at point Z.
C) rising prices and falling profits for existing firms in the market.
D) falling prices and falling profits for existing firms in the market.
Long-Run Equilibrium
A state in which all firms in a market are making normal profits and there is no incentive for market entry or exit, usually achieved in the long term.
Demand Increases
Situations or conditions that lead to a rise in the quantity of a product or service that consumers are willing and able to purchase.
Market Supply
The total quantity of a good or service that all producers in a market are willing and able to sell at various prices.
- Investigate the consequences of market demand fluctuations on corporate strategies and market stability in both immediate and extended timeframes.
Verified Answer
GN
godfred nyameJul 19, 2024
Final Answer :
B
Explanation :
An increase in demand leads to higher prices and profits in the short run, attracting new firms into the market. This increases supply, moving the market to a new long-run equilibrium at a point like Z, where profits are normalized due to the increased competition.
Learning Objectives
- Investigate the consequences of market demand fluctuations on corporate strategies and market stability in both immediate and extended timeframes.