-Suppose a Perfectly Competitive Market Is in Long-Run Equilibrium and Then

question 87

Multiple Choice

-Suppose a perfectly competitive market is in long-run equilibrium and then there is a permanent increase in the demand for that product. The new long-run equilibrium will have

• A) fewer firms in the market.
• B) the same number of firms in the market.
• C) more firms in the market.
• D) probably a different number of firms, but it is not possible to determine if there will be more or fewer firms.
• E) a permanent decrease in supply.

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Definitions:

Forward Rate

The agreed-upon price for a financial transaction to be executed at a future date, used particularly in currency and interest rate markets.

2-year Bond

A debt security that matures in two years and typically offers periodic interest payments.

Stripped Treasuries

Securities derived from U.S. Treasury bonds by separating the coupons from the principal, allowing them to be sold separately as zero-coupon bonds.

Pure Yield Curve

A theoretical representation of the rates of interest for zero-coupon bonds across different maturities under the assumption of no risk.