A Competitive Market Is in Long-Run Equilibrium

question 251

Multiple Choice

A competitive market is in long-run equilibrium. If demand increases, we can be certain that price will

• A)rise in the short run. Some firms will enter the industry. Price will then rise to reach the new long-run equilibrium.
• B)rise in the short run. Some firms will enter the industry. Price will then fall to reach the new long-run equilibrium.
• C)fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.
• D)not rise in the short run because firms will enter to maintain the price.

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Definitions:

Full Income

The total earnings, including all sources of income and gains, not just wages from employment.

Dividend Income

Income received from owning shares of a company, typically paid out from the company's profits to shareholders at regular intervals.

Nonlabor Income

Income received from sources other than employment or the active exertion of effort, such as dividends, interest, or rental income.

Leisure

Time free from work or duties, which can be used for rest, recreation, or other personal activities.