The Self-Correcting Nature of Competitive Markets
A perfectly competitive market is said to be in a stable long-run equilibrium when firms are earning zero economic profit. Explain the economic mechanism that maintains this stability. In your answer, describe the market adjustments that would occur if a typical firm were instead making a positive economic profit, and the adjustments that would occur if it were making an economic loss.
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The Self-Correcting Nature of Competitive Markets
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Market Adjustment to a Regulatory Shock
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A perfectly competitive market is initially in long-run equilibrium where firms earn zero economic profit. Match each external shock to the sequence of events that describes the market's adjustment process to a new long-run equilibrium.
In a perfectly competitive market that has achieved long-run equilibrium, the primary reason the market remains stable, with no incentive for firms to enter or exit, is that all existing firms are earning ____ profit.
A perfectly competitive market for coffee beans is in a stable, long-run equilibrium. A new, widely-publicized health study reveals significant benefits of daily coffee consumption, causing a permanent increase in consumer demand. Assuming this is a constant-cost industry, how will the new long-run equilibrium compare to the original equilibrium before the study was published?
A perfectly competitive market for solar panels is in long-run equilibrium. A major technological breakthrough significantly reduces the cost of producing each panel. Arrange the following events in the chronological order they would occur as the market adjusts to a new long-run equilibrium.