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In perfect competition, price is fixed where the quantity demand will equal to the quantity supply in the industry. Demand and quantity will equal, price will fixed.
Short Period and Effect of Demand
If there is short period, effect of demand on the price will more than supply.
Long Period and Effect Supply
If there is long period, effect of supply on demand will more than demand.
Now, understand the importance of different time element for price determination in perfect competition.
1. Very short period
In very short period, we can not increase supply when there is big demand. Firm can decide to who we will give or not on the basis of demand. If demand is increasing in very short period, firm can demand more price and only short listed buyer can buy. So, demand can decide new price. At this, time, market price will be.
2. Short period
In short period, supply can increase upto production ability but still, we will unable to add new machinery or adding new firm in industry for fulfill same demand. So, demand is also base. If buyer will demand more, price will increase, if demand is less in short period, price will decrease. We will decide only sub normal price
3. Long period
In long period, firm can get new share capital for adding new machine and infrastructure if demand increases in the long period, with this, we can increase supply as per demand. So, effect of supply will more on price in long period. If supply will increase, price will decrease. If supply will decrease, price will increase. At this, there will be normal price.
4. Very long period
In very long run, secular price will determined in perfect competition. Because both demand and supply will change in very long period like after 20 years. Population's habit may change. New invention will come. Like After invention of electric cycle and electric motor cycle, demand of petrol motor cycle is decreasing day by day and demand is increasing, so price will increase of electric cycle.
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