When demand increases in a perfectly competitive market, the market price _______ in the short run and _______ in the long run.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, when demand increases, the market price initially increases due to the higher demand and limited supply. In the long run, however, the market adjusts as new firms enter the market attracted by the higher profits, increasing the supply and thus leading to a decrease in prices back towards the equilibrium.

When Demand Increases in a Perfectly Competitive Market, the Market