Suppose a perfectly competitive market is in long-run equilibrium with a price of $12. Then there is a permanent increase in demand. As a result, in the short run the market price ________ and in the long run the number of firms ________ and the price is ________ the price was in the short run.

Question

Quizplus · Accepted Answer

In the short run, an increase in demand raises the price due to the fixed number of firms. In the long run, new firms enter the market, increasing supply, which lowers the price back towards the long-run equilibrium, but it remains higher than the original due to the increased demand.

Suppose a Perfectly Competitive Market Is in Long-Run Equilibrium with a Price