Question

Assume the market for tea is perfectly competitive and in the long run equilibrium. Suppose the price of coffee, a substitute for tea, increases. What will happen to the tea market as we move to the new long run equilibrium? Market quantity will ______________; market price will ______________; and firms' profits will ______________ Indicate whether increase, decrease, cannot tell, or no change as before the price shift is correct for each blank space.

Answer 1

Options: INCREASE, DECREASE, CANNOT TELL, or NOT CHANGE

Answer:Increase;not change;not change

Explanation: A perfect competition is a type of market competitive driven by the forces of demand and supply and other factors of the economy. In a perfect competition a change in price will cause consumers to change to other substitutes making the demand for those substitutes to INCREASE. On the long run the total price of the close substitutes will NOT CHANGE and also the profit made by the substitute will NOT CHANGE.