Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Prices will increase due to higher demand without changes in supply.
B
New firms will enter the market, driving prices down to the minimum average cost.
C
Firms will exit the market, leading to a decrease in overall supply.
D
The market will reach a new equilibrium without any changes to supply or demand.
Understanding the Answer
Let's break down why this is correct
Answer
In a perfectly competitive market, economic growth usually leads to an increase in demand for goods and services. As more people have jobs and earn money, they buy more products, which encourages businesses to produce more. In the long run, this increased production can lead to new firms entering the market, which helps to meet the higher demand. For example, if a new technology makes it cheaper to produce smartphones, more companies might start making them, increasing supply. Eventually, this adjustment leads to a new long-run equilibrium where supply meets the increased demand, and prices settle at a new level that reflects the changes in the market.
Detailed Explanation
When the economy grows, more people want to buy things. Other options are incorrect because Some might think that higher demand always raises prices; It's a common mistake to think firms leave when demand rises.
Key Concepts
Perfect competition
Economic growth
Topic
Long-Run Equilibrium Adjustments
Difficulty
medium level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.