Suppose a Competitive Market Has a Horizontal Long-Run Supply Curve

question 287

Multiple Choice

Suppose a competitive market has a horizontal long-run supply curve and is in long-run equilibrium. If demand decreases, we can be certain that in the short-run,

• A)at least some firms will shut down.
• B)price will fall below marginal cost for some firms.
• C)price will fall below average total cost for some firms.
• D)at least some firms will enter the industry.

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Definitions:

Aggregate Supply

The entirety of goods and services that economic entities intend to market within a particular period in an economic environment.

Expected Price Level

The anticipated average of prices for all goods and services in an economy over a future period.

Labor Contracts

Agreements between employers and employees or unions that define terms of employment, salaries, benefits, and working conditions.

Short-run Phillips Curve

A graphical representation showing the inverse relationship between unemployment rates and inflation rates in the short-term.