Answer to Question #319169 in Macroeconomics for Tshidi

Question

describe the course of events in a competitive market where there is a permanent decrease in demand and a permanent increase in demand

Answer 1

A permanent decrease(increase) in demand decreases (increases) the market quantity, and the market price falls(rises) below(above) ATC for each firm. In the short run, firms in the industry experience an economic loss(profit), which leads to firms exiting(entering) the market in the long run. This exits(entry) causes the supply curve to shift backwards(forwards) causing market price to increase(decrease) while market demand keeps decreasing(increasing).