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Substitute good

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Suppose that a competitive industry is in a long-­â?run competitive equilibrium. Then the price of a  substitute good (in consumption) decreases.  What will happen in the short run to:  
a. The market supply and demand curves  
b. Market  price  
c. Market  output  
d. The firm's output
e. The firm's profit

How about in the long run?

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Solution Summary

Substitute good decreases in a long-run competitive equilibrium is examined in the solution.

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a. supply does not change because a decrease in substitute good price will not affect the suppliers.

demand will decrease because more people will find the substitute more attractive, therefore the demand for this good will drop.

b. market price will drop as a ...

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