Explain Why a Sudden Decrease in Demand in a Competitive

question 130

Essay

Explain why a sudden decrease in demand in a competitive industry causes price to fluctuate more in the short run than in the long run, compared to the original equilibrium price.

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Definitions:

Equilibrium

A state in a market where supply equals demand, meaning that there is no tendency for the market price to change unless external factors alter supply or demand.

Specializing

The process by which individuals, businesses, or countries focus on producing a limited range of goods or services, to gain a competitive advantage in terms of efficiency, quality, or cost.

Specialization

Refers to the process by which individuals, firms, or countries focus on producing a limited range of goods or services to achieve greater efficiencies.

Economic Output

The total value of all goods and services produced within an economy over a specific period.