Impact of Supply and Demand Shifts in Perfect Competition

Medium Microeconomics Market Structures

In a perfectly competitive market, firms are price takers and can sell as much as they want at the market price. However, they cannot influence the market price through their individual supply. Consider the following scenarios:

- Scenario 1: A new technology is introduced that reduces the cost of production for all firms in the market.

- Scenario 2: There is a sudden increase in demand for the product, while the number of firms in the market remains the same.

Which of the following statements correctly reflects how these scenarios would impact the market equilibrium?

In Scenario 1, the market supply curve shifts to the right, leading to a decrease in market price, while in Scenario 2, the market demand curve shifts to the right, leading to an increase in market price.

In both scenarios, the market price will remain unchanged, as firms are price takers.

In Scenario 1, the market equilibrium quantity increases but the price stays the same, while in Scenario 2, both the price and quantity increase.

Hint

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