A Competitive Market Is in Long-Run Equilibrium

question 3

Multiple Choice

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.

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Definitions:

Price Changes

Refers to the variation in the cost of goods and services over time, often influenced by factors such as supply and demand, inflation, and market competition.

Consumption

The act of using goods and services to satisfy needs or desires.

Time Constraint

A limitation or restriction on the period within which something can be achieved.

Microeconomics

The branch of economics that focuses on the actions of individuals and industries, like the dynamics between buyers and sellers, borrowers and lenders.