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PERFECT COMPETITION, LONG-RUN ADJUSTMENT: A perfectly competitive industry undertakes a two-part adjustment to equilibrium in the long run. One is the adjustment of each perfectly competitive firm to the appropriate factory size that maximizes long-run profit. The other is the entry of firms into the industry or exit of firms out of the industry, to eliminate economic profit or economic loss. The end result of this long-run adjustment is a multi-faceted equilibrium condition that price is equal to marginal cost and average cost (both short run and long run).
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Lesson 8: Market Shocks | Unit 1: Adjustments
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Page: 2 of 20
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There are three basic questions about market changes which we need to ask in this lesson. Three questions: - What causes the market to move? What shocks the market? What disrupts the market from it's existing equilibrium?
- What are the consequences of the move to the market? What is the price and quantity at the new market equilibrium?
- Is the market move good or bad? How does the new equilibrium compare with the old? Is the price higher or lower? Is the quantity greater or less? Three Questions
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MARKET-CLEARING PRICE The price that exists when a market is clear of shortage and surplus, or is in equilibrium. Market-clearing price is a common, non-technical term for equilibrium price. In a market graph, the market-clearing price is found at the intersection of the demand curve and the supply curve.
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"A winner is someone who recognizes his God-given talents, works his tail off to develop them into skills, and uses those skills to accomplish his goals. " -- Larry Bird, basketball player
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Q-RATIO
Ratio of Total Market Value of Physical Assets
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