A Long-Run Supply Curve Is Flatter Than a Short-Run Supply

question 277

Multiple Choice

A long-run supply curve is flatter than a short-run supply curve because

• A)firms can enter and exit a market more easily in the long run than in the short run.
• B)long-run supply curves are sometimes downward sloping.
• C)competitive firms have more control over demand in the long run.
• D)firms in a competitive market face identical cost structures.

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Definitions:

Liquidity Risk Premium

The extra yield or return that investors demand for holding a security that may not be easily sold or converted into cash without a significant loss in value.

Maturity Risk Premium

The additional yield demanded by investors as compensation for the increased risk of holding a bond as it approaches its maturity date.

Inflation Rate

The rate at which the general level of prices for goods and services is rising, and, subsequently, the purchasing power of currency is falling.

Pure Rate

The interest rate exclusive of all other elements such as risk premium, inflation, or other costs often considered the real rate of interest with no adjustments.