A Perfectly Competitive Market Is in Equilibrium and Then Demand

question 38

Multiple Choice

A perfectly competitive market is in equilibrium and then demand decreases.The decrease in demand means the market price will ________ and eventually there will be ________.

• A) rise; entry by new firms
• B) fall; exit by existing firms
• C) fall; entry by new firms
• D) rise; exit by existing firms
• E) fall; neither entry nor exit because the market is perfectly competitive

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Definitions:

Compounded Annually

A method of calculating interest in which the interest is added to the principal at the end of each year, then new interest is calculated on the total for the next period.

Present Value

The now-value of a prospective sum of money or cash flow sequence, according to a certain rate of return.

Rate of Return

The financial outcome, either positive or negative, of an investment within a set period, delineated as a proportion of the investment’s initial outlay.

Interest Rate

The percentage charged on a loan or paid on deposits over a period of time, often annually.