A sudden decrease in the market demand in a competitive industry leads to
A)A market equilibrium price higher than the original equilibrium in the short-run
B)A market equilibrium price equal to the original equilibrium in the long-run
C)Both a and b
D)None of the above

Question

A sudden decrease in the market demand in a competitive industry leads to ​
A)​A market equilibrium price higher than the original equilibrium in the short-run
B)A market equilibrium price equal to the original equilibrium in the long-run
C)Both a and b
D)​None of the above

Quizplus · Accepted Answer

In the short-run, the sudden decrease in market demand in a competitive industry will result in excess supply, which will push the price down from the original equilibrium price. However, in the long-run, some firms will exit the market, reducing the supply and shifting the supply curve to the left. This will eventually lead to a new equilibrium with a lower price and lower quantity demanded, but it will be equal to the original equilibrium price in the long-run. Thus, option B is correct. Option A is incorrect because the market equilibrium price will be lower than the original equilibrium in the long-run. Option C is incorrect because option A is wrong. Option D is incorrect as there is a valid answer.

A Sudden Decrease in the Market Demand in a Competitive