If the demand curve shifts down and to the left in an increasing cost market, then:
A)both the short run and long run prices stay the same.
B)both the short run and long run prices decrease.
C)both the short run and long run prices increase.
D)the short run price increases and the long run price stays the same.

Question

Quizplus · Accepted Answer

When the demand curve shifts down and to the left, it indicates a decrease in demand. In an increasing cost market, this leads to a decrease in both short run and long run prices. This is because in the short run, firms still have fixed costs that they need to cover, so they lower prices to try to sell their goods. In the long run, however, this lower demand will lead to firms exiting the market, which decreases supply and causes prices to increase again. However, in the short run, prices will still decrease.

If the Demand Curve Shifts Down and to the Left