Consider a competitive market with a large number of identical firms. The firms in this market do not use any resources that are available only in limited quantities. In this market, an increase in demand will
A)increase price in the short run but not in the long run.
B)increase price in the long run but not in the short run.
C)increase price both in the short and the long run.
D)not affect price in either the short or the long run.

Question

Quizplus · Accepted Answer

In a competitive market with many identical firms and no limited resources, an increase in demand can lead to a short-term price increase as firms adjust production. However, in the long run, the ease of entry and exit in the market and the absence of resource constraints mean that new firms can enter, or existing firms can expand production, increasing supply to meet the higher demand, thus bringing the price back to its original level.

Consider a Competitive Market with a Large Number of Identical