If a Short-Run Equilibrium Occurs at a Level of Output

question 81

Multiple Choice

If a short-run equilibrium occurs at a level of output below the natural rate, then in the transition to the long run prices will ______ and output will ______.

• A) increase; increase
• B) decrease; decrease
• C) increase; decrease
• D) decrease; increase

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Definitions:

Demand Curve

The demand curve is a graph showing the relationship between the price of a good and the amount that consumers are willing and able to purchase at various prices.

Consumer Surplus

The gap between what consumers are ready and can afford to pay for a product or service, versus what they actually spend.

Producer Surplus

The difference between the amount that a producer is paid for a good or service and the minimum amount they are willing to accept for it.

Marginal Revenue

The additional income derived from the sale of one more unit of a good or service.