Question

Assume there is an increase in demand in a perfectly competitive market that was initially in long-run equilibrium. Which of the following statements is false?
a. Consumers have shown that they now consider the good to be more valuable.

b. In the short-run profits will be lower than normal.

c. Resources from other industries will be attracted into the market.

d. Over time, the market supply curve will shift right

Answer 1

Answer:

b. In the short-run profits will be lower than normal.

Explanation:

a. An increase in demand means that customer desire for that good has increase. Thus, it is fair to infer that consumers have shown that they now consider the good to be more valuable.

b. It is actually quite the opposite, in the short-run, companies will be able to raise their prices and profits will be higher than normal.

c. The opportunity related to the increase in demand could be enough to attract resources from other industries into the market.

d. Since this is a perfectly competitive market, it tends to reach equilibrium and the market supply curve will shift right.

The false statement is alternative b.