Consider the market for tomatoes as a perfectly competitive market, and suppose it is currently at a long run equilibrium. Then, suppose the FDA comes out with a favorable report, saying that tomato consumption reduces cancer. Compared to the initial equilibrium, how do the market price and quantity change in the short run?
Perfectly competitive market is very sensitive. If the price changes, the demand will be 0. Demand curve is horizontal in a perfectly competitive market. However, if consumers find out it reduces cancer, than demand will increase, this price will increase. Quantity demanded will increase; market price will also increase
