Consider the following statements when answering this question: I. Increases in the demand for a good, which is produced by a competitive industry, will raise the short-run market price.
II) Increases in the demand for a good, which is produced by a competitive industry, will raise the long-run market price.
A) I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) I and II are false.

Question

Quizplus · Accepted Answer

In the short-run, an increase in demand for a good produced by a competitive industry will result in a higher market price as firms have a limited capacity to increase their output. However, in the long-run, firms can increase their production capacity through investments in new technology or factories, and as a result, the market price will return to its original level. Therefore, statement I is true in the short-run but not in the long-run. Statement II is false because the long-run market price will be the same as the original price.

Consider the Following Statements When Answering This Question: I