In a perfectly competitive market,tastes and preferences lead to an increase in the demand for the good.Holding everything else constant,this will lead to an increase in price that will result in ___ in the short run,which will in turn _,which will ___.

A) positive economic profits;attract new firms;reduce the price
B) economic losses;attract new firms;reduce the price
C) positive economic profits;lead some firms to leave the industry;further increase the price
D) economic losses;lead some firms to leave the industry;further increase the price

Question

In a perfectly competitive market,tastes and preferences lead to an increase in the demand for the good.Holding everything else constant,this will lead to an increase in price that will result in _____ in the short run,which will in turn _____,which will _____.

A) positive economic profits;attract new firms;reduce the price
B) economic losses;attract new firms;reduce the price
C) positive economic profits;lead some firms to leave the industry;further increase the price
D) economic losses;lead some firms to leave the industry;further increase the price

Brynne Burnett · Accepted Answer

Final Answer : A, Explanation :  In a perfectly competitive market, an increase in demand (due to tastes and preferences) leads to higher prices and, consequently, positive economic profits in the short run. These profits attract new firms into the market, increasing supply and thus reducing the price back towards the equilibrium.

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