In a Perfectly Competitive Market That Is in Long-Run Equilibrium

question 432

Multiple Choice

In a perfectly competitive market that is in long-run equilibrium, a permanent leftward shift in the market demand curve

• A) raises the price in the short run.
• B) raises profits in the short run.
• C) leads to new firms entering the market in the long run.
• D) lowers the price at first but then raises it as firms leave the market.

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Definitions:

Expected Value

The calculated average of all possible values for a random variable, weighted by their probabilities of occurrence.

Lottery

A form of gambling involving the drawing of numbers at random for a prize, often run by state or federal governments.

Risk Aversion

A preference for avoiding risk, where individuals or organizations opt for lower-risk options even when higher risks may offer greater potential rewards.

Adverse Selection

Refers to the fact that “bad types” are likely to be selected in transactions where one party is better informed than the other. Examples include higher risk individuals being more likely to purchase insurance, more low-quality cars (lemons) being offered for sale, or lazy workers being more likely to accept job offers. Adverse selection is a precontractual problem that arises from hidden information about risks, quality, or character.