Which of the following is the correct sequence of events following a decrease in demand for a product in a perfectly competitive market?

Question

Quizplus · Accepted Answer

In a perfectly competitive market, a decrease in demand will result in excess supply, leading to a decrease in price. This decrease in price will also lead to a decrease in the total profits of the representative firm. As firms in this market are price takers, they cannot control the market price and will have to accept the lower price. This decrease in profits will cause some firms to leave the industry, reducing the supply and eventually leading to equilibrium. Thus, option B is the correct sequence of events following a decrease in demand for a product in a perfectly competitive market.

Which of the Following Is the Correct Sequence of Events