Asked by Asive Sibeko on Jul 24, 2024
Verified
A competitive market begins in a situation of long-run equilibrium. Then, there is an increase in demand. Describe the process that eventually leads to a new long-run equilibrium.
Long-Run Equilibrium
A state in which all factors of production and economic inputs can be fully adjusted, and all market forces are balanced.
Increase in Demand
A situation where the quantity of a good or service that consumers are willing and able to purchase at a particular price rises.
- Investigate the essential conditions for establishing long-run equilibrium in competitive markets and the subsequent adjustment following demand fluctuations.
- Understand how supply and demand influence market equilibrium and the consequences of changes in demand on this equilibrium.
Verified Answer
AS
Ananya SharmaJul 30, 2024
Final Answer :
The increase in demand results in firms earning positive profits. In response to the positive profits, new firms enter the market, increasing short-run supply. Eventually, short-run supply has increased sufficiently to restore zero profits. At that point the market has reached a new long-run equilibrium.
Learning Objectives
- Investigate the essential conditions for establishing long-run equilibrium in competitive markets and the subsequent adjustment following demand fluctuations.
- Understand how supply and demand influence market equilibrium and the consequences of changes in demand on this equilibrium.