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: 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.
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