In a perfectly competitive market, what happens to the price and quantity of goods in the long run when there is an increase in demand?

In a perfectly competitive market, when there is an increase in demand for a good, the price of that good will initially rise. This happens because more people want to buy the product, so sellers can charge more. As the price increases, existing companies will produce more to take advantage of the higher prices, and new companies may enter the market because they see a chance to make profits. Over time, as more companies enter and produce the good, the supply will increase, which will eventually lower the price back down to a level where firms just cover their costs. For example, if a popular toy becomes more desired during the holiday season, toy makers will initially raise prices, but soon more companies will start making that toy, leading to more supply and stabilizing the price.