In a perfectly competitive market, tastes and preferences lead to an increase in the demand for the good. Holding everything else constant, this will lead to an increase in price that will result in _____, which will _____, which will _____.

Question

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In a perfectly competitive market, an increase in demand leads to higher prices, resulting in positive economic profits. This attracts new firms, increasing supply and eventually reducing the price back to equilibrium.

In a Perfectly Competitive Market, Tastes and Preferences Lead to an Increase