Question

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, we expect that the market price will ________ and the output of a typical firm will ________.

a. rise; rise

b. fall; fall

c. rise; fall

Answer 1

a. rise; rise

Step-by-step explanation:

When demand is increased the demand curve shift to the right. In the short run supply curve has not adjusted so it will intersect demand curved at new equilibrium point with higher price and higher quantity (price)