Asked by MAYSSA TWEET on Sep 24, 2024
Verified
A sudden decrease in the market demand in a competitive industry leads to
A) A market equilibrium price higher than the original equilibrium in the short-run
B) A market equilibrium price equal to the original equilibrium in the long-run
C) Both a and b
D) None of the above
Market Equilibrium
A condition where supply equals demand, and the market price becomes stable.
Competitive Industry
An industry characterized by numerous competitors, where businesses vie for market share by offering unique products, prices, or services.
Market Demand
The overall sum of a particular good or service that consumers in a marketplace are prepared and able to buy across a range of prices.
- Acquire insight into how market equilibrium is affected in the short and long term by shifts in demand and supply in competitive markets.
- Master the concept of economic profits and their convergence towards zero over the long term in competitive spheres.
Verified Answer
KD
KAREN DUONG2 days ago
Final Answer :
B
Explanation :
In the short-run, the sudden decrease in market demand in a competitive industry will result in excess supply, which will push the price down from the original equilibrium price. However, in the long-run, some firms will exit the market, reducing the supply and shifting the supply curve to the left. This will eventually lead to a new equilibrium with a lower price and lower quantity demanded, but it will be equal to the original equilibrium price in the long-run. Thus, option B is correct. Option A is incorrect because the market equilibrium price will be lower than the original equilibrium in the long-run. Option C is incorrect because option A is wrong. Option D is incorrect as there is a valid answer.
Learning Objectives
- Acquire insight into how market equilibrium is affected in the short and long term by shifts in demand and supply in competitive markets.
- Master the concept of economic profits and their convergence towards zero over the long term in competitive spheres.