In a perfectly competitive market, if demand increases significantly, new firms will enter the market, leading to a long-term decrease in prices as supply adjusts to the higher demand.

In a perfectly competitive market, many firms sell similar products, and no single firm can control the market price. When demand for a product increases significantly, consumers want to buy more, which can lead to higher prices in the short term. Seeing the opportunity to make profits, new firms will enter the market to sell their products. As these new firms start operating, the overall supply of the product increases. Eventually, this increase in supply will lead to a decrease in prices, bringing them back to a level where firms can cover their costs but not make excessive profits.