A Friend of Yours Tells You That in Order for Markets

question 3

Essay

A friend of yours tells you that in order for markets to be efficient, all investors need to be rational all of the time.Is your friend correct? Why, or why not?

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Definitions:

Short-run Equilibrium

A state in an economy or market where supply equals demand, considering that some factors (like capital) are fixed in the short term.

Decreasing-cost Industry

An industry characterized by a reduction in average costs as the scale of production increases, usually due to factors like technological advances.

Long-run Equilibrium

Long-run equilibrium occurs in a market when all producers and consumers have fully adjusted to any changes in the market conditions, with no excess supply or demand.

Economic Profits

The variance between total income and total expenses of a business, factoring in both clear and hidden costs.