A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will
A)fall in the short run.All firms will shut down, and some of them will exit the industry.Price will then rise to reach the new long-run equilibrium.
B)fall in the short run.No firms will shut down, but some of them will exit the industry.Price will then rise to reach the new long-run equilibrium.
C)fall in the short run.All, some, or no firms will shut down, and some of them will exit the industry.Price will then rise to reach the new long-run equilibrium.
D)not fall in the short run because firms will exit to maintain the price.

Question

Quizplus · Accepted Answer

In a competitive market, a decrease in demand leads to a short-run price fall. The impact on firms (shutdown, exit) varies, but some will exit, reducing supply and eventually raising the price to a new equilibrium.

A Competitive Market Is in Long-Run Equilibrium