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 an excess supply of the product, resulting in a temporary decrease in the market price. However, in the long run, firms will exit the market due to the lower demand and lower prices, leading to a decrease in supply and eventually a higher equilibrium price. 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