Asked by Jazlyn Batista on Sep 24, 2024
Verified
A sudden fall in the market demand in a competitive industry leads to
A) A short run market equilibrium price higher than the original equilibrium
B) A market equilibrium price higher than the short run price
C) New firms entering the market
D) All of the above
Market Equilibrium
A situation in a market where the quantity of a good or service supplied matches the quantity demanded, leading to a stable price.
Competitive Industry
A market characterized by a large number of firms competing against each other, leading to product diversity, innovation, and fair prices for consumers.
Market Demand
represents the total demand for a product or service within a market, determined by consumers' willingness and ability to buy at various prices.
- Grasp the concept of market equilibrium evolution in the transient and enduring phases due to the fluctuation of supply and demand in competitive sectors.
Verified Answer
JN
Jean Nobert Nerette4 days ago
Final Answer :
B
Explanation :
A sudden fall in market demand in a competitive industry will lead to a decrease in both price and output in the short run. However, firms may not be able to cover their variable costs at the new lower price, leading to some firms exiting the market. This will allow the remaining firms to increase their market share, leading to higher market power and ultimately a higher equilibrium price in the long run. Therefore, option B is the most appropriate answer. Options A and C are incorrect as they do not accurately describe the impact of a sudden fall in market demand in a competitive industry.
Learning Objectives
- Grasp the concept of market equilibrium evolution in the transient and enduring phases due to the fluctuation of supply and demand in competitive sectors.