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LONG-RUN EQUILIBRIUM CONDITIONS: The long-run equilibrium of perfectly competitive industry generates six specific equilibrium conditions, including (1) economic efficiency (P = MC), (2) profit maximization (MR = MC), (3) perfect competition (MR = AR = P), (4) breakeven output (P = AR = ATC), (5) minimum production cost (MC = ATC), and (6) minimum efficient scale (MC = ATC = LRAC = LRMC).

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Lesson 12: Business Cycles | Unit 4: Causes Page: 19 of 26

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Three points about investment and business cycles:
  • First: Investment is sensitive to interest rates. Higher interest rates increase the cost of investment borrowing and discourages investment.
  • Second: Interest rates rise and fall with the business cycle. During an expansion, interest rates rise enough to discourage investment, and trigger a contraction. During a contraction, interest rates fall enough to encourage investment and cause a new expansion.
  • Third: Investment doesn't react immediately to interest rates. The production of capital goods takes time and does not respond instantly to interest rate changes.
Interest-rate-induced changes in investment seem to be a natural cause-and-effect part of business cycles.

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CETERIS PARIBUS

A Latin term meaning that other factors remain unchanged. Ceteris paribus is commonly used as an assumption when conducting a wide variety of economic analyses. By holding everything else constant, the ceteris paribus assumption makes it possible to identify the cause-and-effect relation between two factors. Relaxing the ceteris paribus assumption is the primary analytical technique used in the comparative statics study of economics.

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Today, you are likely to spend a great deal of time calling an endless list of 800 numbers looking to buy either a large, stuffed kitty cat or a cross-cut paper shredder. Be on the lookout for crowded shopping malls.
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Ragnar Frisch and Jan Tinbergen were the 1st Nobel Prize winners in Economics in 1969.
"When you play, play hard; when you work, don't play at all. "

-- Theodore Roosevelt, 26th US president

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