A perfectly competitive market is in equilibrium and then demand decreases. The decrease in demand means the market price will ________ and eventually there will be ________.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, if demand decreases, there will be excess supply at the original equilibrium price. This will lead to a fall in the market price to a new equilibrium point. As a result, existing firms in the market will now earn lower profits, and some may even incur losses. This will incentivize them to exit the market, leading to a reduction in the number of firms in the industry. Hence, the correct answer is D - fall in price and exit by existing firms.

A Perfectly Competitive Market Is in Equilibrium and Then Demand