Assume the Tennis Ball Industry, a Perfectly Competitive, Decreasing‐cost Industry

question 228

Multiple Choice

Assume the tennis ball industry, a perfectly competitive, decreasing‐cost industry, is in long-run equilibrium with a market price of $5. If the demand for tennis balls decreases, long-run equilibrium will be reestablished at a price

• A) greater than $5.
• B) less than $5.
• C) equal to $5.
• D) either greater than or less than $5, depending on the number of firms that enter the industry.

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Definitions:

Required Reserves

The minimum amount of reserves a bank must hold as mandated by regulatory authorities, based on a percentage of the bank's deposit liabilities.

Demand Deposits

Bank accounts from which money can be withdrawn at any time without any notice to the bank.

Original Maturity

The original length of time until a financial instrument, such as a bond or loan, is due to be repaid in full.

Required Reserves

The minimum amount of reserves a bank needs to hold as mandated by central banks to ensure financial stability and liquidity.