Using Figure 1 above, if the aggregate demand curve shifts from AD3 to AD2 the result in the short run would be:
A. P3 and Y1.
B. P2 and Y1.
C. P2 and Y3.
D. P1 and Y2.
Answer: B
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A perfectly competitive firm can continue to earn above-normal profit in the long run
a. if it has a continued technical advantage over other firms in the market and it is able to keep that advantage a secret b. if it has employees that are substantially more efficient than other firms' workers c. if its centralized location reduces its transportation costs below those of other firms d. if it has easier access to necessary raw materials e. under no circumstances
When economists refer to the economy’s self-correcting mechanism, they are referring to the fact that the
A. economy will react automatically to a recessionary gap through inflation. B. economy will react automatically to an inflationary gap through deflation. C. economy will react automatically to an inflationary gap through inflation. D. simple multiplier is greater than the complex multiplier.
________ believe that real output is determined by aggregate supply.
A. Socialists B. Monetarists C. Communists D. Keynesians
The figure below depicts the short-run market equilibrium in a perfectly competitive market and the cost curves for a representative firm in that market. Assume that all firms in this market have identical cost curves.
Given that the current equilibrium price is $8, what will happen to the number of firms in this market in the long run?
A. It is impossible to determine whether the number of firms in this market will rise or fall. B. The number of firms in the market will rise as firms enter the market in response to positive economic profit. C. The number of firms in the market will fall as firms exit the market in response to negative economic profit. D. The number of firms in the market will not change unless there is a change in either demand or in the cost of production.