A competitive market is in long-run equilibrium. If demand increases, we can be certain that price will
A)rise in the short run. Some firms will enter the industry. Price will then rise to reach the new long-run equilibrium.
B)rise in the short run. Some firms will enter the industry. Price will then fall 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 rise in the short run because firms will enter to maintain the price.

Question

Quizplus · Accepted Answer

In the short run, an increase in demand will cause prices to rise. This attracts new firms to enter the industry, increasing supply, which will eventually cause prices to fall back to the new long-run equilibrium level.

A Competitive Market Is in Long-Run Equilibrium