Asked by Veronika Khvan on Jul 24, 2024
Verified
Consider a competitive market with a large number of identical firms. The firms in this market do not use any resources that are available only in limited quantities. In this market, an increase in demand will
A) increase price in the short run but not in the long run.
B) increase price in the long run but not in the short run.
C) increase price both in the short and the long run.
D) not affect price in either the short or the long run.
Competitive Market
A market structure characterized by a large number of buyers and sellers, none of whom can control the market price.
Identical Firms
Companies in a market that offer the same products or services under the same conditions, with no differentiation.
Limited Quantities
Refers to the specified number of items available within a certain period, often influenced by production or supply constraints.
- Examine how shifts in market demand influence the actions of firms and the state of market equilibrium over short and long periods.
Verified Answer
AS
Atinderpal SinghJul 24, 2024
Final Answer :
A
Explanation :
In a competitive market with many identical firms and no limited resources, an increase in demand can lead to a short-term price increase as firms adjust production. However, in the long run, the ease of entry and exit in the market and the absence of resource constraints mean that new firms can enter, or existing firms can expand production, increasing supply to meet the higher demand, thus bringing the price back to its original level.
Learning Objectives
- Examine how shifts in market demand influence the actions of firms and the state of market equilibrium over short and long periods.