Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
All firms earn zero economic profit
B
Prices are fixed
C
Resources are not fully employed
D
There is persistent inflation
Understanding the Answer
Let's break down why this is correct
Answer
Long-run equilibrium in an economy occurs when all resources are being used efficiently, and there is no tendency for change in the overall price level or output. This means that businesses are producing at their full capacity, and unemployment is at its natural rate, where everyone who wants a job can find one. In this state, the quantity of goods and services demanded equals the quantity supplied, leading to stable prices. For example, if a bakery in a town is producing enough bread to meet the demand without wasting ingredients or time, it reflects long-run equilibrium. Overall, long-run equilibrium shows a balanced economy where all factors are working together smoothly.
Detailed Explanation
In long-run equilibrium, firms adjust their production until they earn zero economic profit. Other options are incorrect because Some might think prices stay the same in the long run; It's a common mistake to think resources are not fully used in long-run equilibrium.
Key Concepts
Long-run equilibrium
Topic
Long Run Economic Adjustment
Difficulty
easy level question
Cognitive Level
understand
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