Question

If there is a permanent increase (shift) in market demand, what will happen in a competitive market in the long run?

Group of answer choices

Overall market quantity stays the same, price increases

Overall market quantity increases, price stays the same

Overall market quantity increases, price increases

Overall market quantity increases, price decreases

Answer 1

Answer: overall market quantity increases, price stays the same.

With a permanent increase in demand, the demand curve shifts rightward. Quantity rises and price rises. Since, the market is earning economic profit, many firms will get attracted and will enter the market. Supply increases and will outward. With increase in supply, market price falls back to its original position. Many firms will exit the market as they incur losses. Eventually, overall market quantity increases and the price remains the same.