In a perfectly competitive market,in response to a permanent decrease in demand:

Question

Quizplus · Accepted Answer

In the short run, the decrease in demand will lead to excess supply, causing the price to fall from the initial equilibrium. However, in the long run, firms will exit the market or reduce production, causing the supply curve to shift leftward, leading to a new equilibrium at a lower price and lower quantity. Therefore, the short run equilibrium price will be lower than the eventual long run equilibrium price.

In a Perfectly Competitive Market,in Response to a Permanent Decrease