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An economy is initially in long-run equilibrium experiences and then experiences a positive demand shock. what follows?
In the long run is Labor a winner, loser or does it break even? In the long run is Business a winner, loser or does it break even?
Id love to hear feedback as to why.
1 Answer
- Anonymous7 years agoFavorite Answer
The long run equilibrium is the short run equilibrium when the average cost of the industry is at the lowest level. A demand shock will cause new firms to entry the market. And it will pressure down the profits to the long run profit, or at minimum long run average cost. Everyone will reach the optimum point of resource allocation.